Workforce or Workfare?

the extensive margin. In so doing, we have highlighted the need to carefully examine the
margin along which policy operates when making policy recommendations. Additionally,
when deciding whether workfare ought to be part of the policy mix one needs to take
due account of what other policies are part of the mix.

Our results are robust to the specification of the costs of workfare. What is crucially
important in our analysis is that workfare raises the net benefits of working and discour-
ages enrollment in public welfare programs. Solow (1998) points out three forces that
might counterbalance the effects highlighted in this article: workfare might be produc-
tive in itself; utility might be increasing in workfare rather than decreasing due to an
increased sense of self-reliance among the recipients of public welfare benefits; and work-
fare might increase the number of welfare claimants as any stigma attached to welfare
receipt might be reduced. In Section 2, we have already suggested how our results can
be adjusted to account for productive workfare. The other two of Solow’s forces have the
potential to change the sign of the welfare and revenue effects highlighted in this article,
but we conjecture that the basic logic of policy design problem is unaltered.

Models of labor supply along the extensive margin may yield further results into work-
fare. For example, adapting to the extensive margin the model of Blumkin et al. (2010) in
which workfare serves a deterrent to income misreporting and welfare fraud may provide
extra incites. In addition, Brett (2005) showed that a role for unproductive workfare can
emerge in an intensive margin model when second-order incentive compatibility condi-
tions of the optimal income tax problem bind so that workers of different productivities
are bunched. Under some circumstance, workfare can help to separate types within the
bunch. It is possible that adding workfare to the extensive margin analysis of Chone and
Laroque (2011) that allows workers to earn less than their full potential might uncover
interactions between workfare and the monotonicity constraints that arise in their model.
As in any short article, we leave open some interesting questions.

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