Assume that the current Disability Insurance (DI) benefi t for those who are unable to work is $X per day and that DI benefi ts go to zero if a worker accepts a job for even 1 hour per week. Suppose that the benefi t rules are changed so those disabled workers who take jobs that pay less than $X per day receive a benefi t that brings their total daily income (earnings plus the DI benefi t) up to $X. As soon as their labor market earnings rise above $X per day, their disability benefi ts end. Draw the old and new budget constraints (label each clearly) associated with the DI program, and analyze the work-incentive effects of the change in benefi ts.
Assume that the current Disability Insurance (DI) benefi t for those who are unable to work is $X per day and that DI benefi ts go to zero if a worker accepts a job for even 1 hour per week. Suppose that the benefi t rules are changed so those disabled workers who take jobs that pay less than $X per day receive a benefi t that brings their total daily income (earnings plus the DI benefi t) up to $X. As soon as their labor market earnings rise above $X per day, their disability benefi ts end. Draw the old and new budget constraints (label each clearly) associated with the DI program, and analyze the work-incentive effects of the change in benefi ts.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Assume that the current Disability Insurance (DI) benefi t for those who
are unable to work is $X per day and that DI benefi ts go to zero if a
worker accepts a job for even 1 hour per week. Suppose that the benefi t
rules are changed so those disabled workers who take jobs that pay less
than $X per day receive a benefi t that brings their total daily income
(earnings plus the DI benefi t) up to $X. As soon as their labor market
earnings rise above $X per day, their disability benefi ts end. Draw the
old and new budget constraints (label each clearly) associated with the
DI program, and analyze the work-incentive effects of the change in
benefi ts.
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