Question

Which of the following statements support the claim that incentives matter? Explain why or why not. 1. When income transfers to the able­bodied poor increase, the recipients will have less incentive to work. 2. An increase in the fines associated with downloading music and videos protected by copyright laws reduces the number of people engaging in this activity. 3. An increase in the number of people downloading music and videos negatively impacts the commercial production of music and videos.

Answer 1

1. When income transfers to the able­bodied poor increase, the recipients will have less incentive to work.

The incentive to work for most people is earning a wage to make a living.

For the poor, this incentive is even more so, because usually, the lack of work for them means severe lacking in their material needs: shelter, food, clothing, electricity, drinking water, and so on.

If the poor are given income transfers from the government, they will have less incentive to work simply because they now obtain some income without the need of doing so.

The incentive to work is reduced even more if the income transfers to the ablebodied poor increase so much that they become higher than the minimum wage. In a situation like this, many ablebodied poor will simply stop searching jobs because they can earn more money from the government by not working.