The left-hand side of (15) is the net benefit of being in the workforce. In the model of
Section 2, this net benefit is everywhere decreasing in m for a given n and a fixed tax-
benefit system. This is why a single critical value m*(c(n),b,r) is sufficient to separate
market workers from non-participants. In the more general model sketched here, it is
possible that the distaste for workfare increases with m, rendering the net benefit of
market work non-monotonic in m. In this case, participants (or non-participants) may
be described as a union of disjoint intervals in [m,m], rather than as a single interval.
The analysis of Section 2 can be repeated, as long as care is taken to break the domains of
integration into appropriate pieces.8 It remains true that workfare increases the net gains
to employment and encourages workforce participation. This is illustrated in Figure 4,
where the upward shift net benefit schedule shrinks the interval over which net-benefits
are negative, which is exactly the region of non-participation.
The qualitative effects of workfare, therefore, remain the same as those outlined in
Section 2: participants are made worse off than when public benefits are offered for free,
and increased participation provides an extra source of (draw on) public funds if there is
a participation tax (subsidy).
4 Conclusion
The informal arguments for workfare and earned income tax credits are quite similar.
Both policy instruments are designed to provide additional incentives for individuals to
enter the labor force. As such, one might expect these two policies to be complementary.
Indeed, in the work of Cuff (2000), there is some support for this idea in the existing
literature on workfare when labor supply decisions are made along the intensive margin.
In this article, we have shown, contrary to these notions, that there is a natural antipathy
between workfare and earned income tax credits when labor supply decisions are along
8In the extreme, the net benefit to market work might increase with m, and individuals with the
highest values of m might be those who choose to work, while those with lower distastes for market work
might actually choose to be on workfare.
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