The Poor Don’t Work Because They Are Economically Rational
19th January 2014
About 3 years ago, I posted a blog post arguing that the poor don’t work due to economic rationality. This was just me playing around with the data and trying to see what I could come up with.
My conclusion back then: by graphing consumption vs income, it turns out that whether you earn $0 or $20k, your consumption is more or less the same. If utility is a monotonic function of consumption, then this means that people who’s labor income will lie between $0 and $20k will have no incentive to work. The data I had is hardly perfect – it’s just broad aggregates. I don’t know where to get a data set which excludes students, the disabled, etc.
Anyway, I forgot about that blog post. It went semi-viral today, so I decided to revisit the topic. Turns out that about a year after I posted it, the CBO issued a report more or less agreeing with it. They compare disposable income to income (rather than consumption to income), but the idea is similar.