Imagine that you’ve been unemployed
and seeking work for months. Government benefit programs have helped
you cover rent, utilities, and food, but you're barely getting by. Finally, you hear back
about a job application. You receive your first paycheck in months,
and things seem to be turning around. But there’s a catch. Your new job pays just enough to
disqualify you from the benefit programs, and not enough
to cover the same costs. To make things worse, you have
to pay for transportation to work, and childcare while you’re at the office. Somehow, you have less money now
than when you were unemployed. Economists call this demoralizing
situation the welfare trap— one of the many different poverty traps
affecting millions of people around the world. Poverty traps are economic
and environmental circumstances that reinforce themselves,
perpetuating poverty for generations. Some poverty traps are tied
to an individual’s circumstances, like a lack of access to healthy food
or education. Others can affect entire nations, such as cycles of corrupt government
or climate change. But the cruel irony of welfare traps
in particular is that they stem from the very policies
designed to battle poverty. Most societies throughout history employed
some strategies to help people in poverty
meet basic needs. Before the 20th century,
religious groups and private charities often led such initiatives. Today, these are called welfare programs, and they usually take the form
of government-provided subsidies for housing, food, energy, and healthcare. Typically, these programs
are means-tested, meaning that only people who fall
below a certain income level are eligible for benefits. This policy is designed to ensure aid
goes to those who need it most. But it also means people lose access
as soon as they earn more than the qualification threshold, regardless of whether or not they're
financially stable enough to stay there. This vicious cycle is harmful to both
those in poverty and those outside of it. Mainstream economic models assume people
are rational actors who weigh the cost and benefits
of their options and choose the most advantageous
path forward. If those in poverty know they'll gain
no net benefit from working, they're incentivized to remain
in government assistance. Of course, people work for many reasons, including societal norms
and personal values. But income is a major incentive
to pursuing employment. And when less people take on new jobs,
the economy slows down, keeping people in poverty and potentially pushing people
on the cusp of poverty over the edge. Some have suggested this feedback loop
could be removed by eliminating government assistance
programs altogether. But most agree the solution
is neither realistic nor humane. So how can we redesign benefits in a way
that doesn't penalize people for working? Many countries have tried different
ways to circumvent this problem. Some allow people to continue receiving
benefits for a given period after finding a job, while others phase out benefits
gradually as income increases. These policies still remove some
financial incentive to work, but the risk of a welfare trap is lower. Other governments provide benefits like
education, childcare, or medical care equally across all their citizens. One proposed solution takes this idea
of universal benefits even further. A universal basic income would provide
a fixed benefit to all members of society, regardless of wealth or employment status. This is the only known policy that could
entirely remove welfare traps, since any earned wages would supplement
the benefit rather than replace it. In fact, by creating a stable income floor
below which no one can fall, basic income might prevent people from
falling into poverty in the first place. Numerous economists and thinkers have championed this idea
since the 18th century. But for now, universal basic income
remains largely hypothetical. Although it's been tried in some
places on a limited scale, these local experiments don’t tell us
much about how the policy would play out across an entire nation—
or a planet. Whatever strategy governments pursue, solving the welfare trap requires
respecting people’s agency and autonomy. Only by empowering individuals
to create long-term change in their lives and communities can we begin to break the cycle
of poverty.
