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Unearned Income

Decent Essays

In this paper, the authors asked a set of interested but thought-provoking questions that would the receipt of additional unearned income (welfare payments) to certain groups of individuals cause them to work less or, in some cases, stop working completely? Since, it is extremely important for welfare policy makers to understand the effects of unearned income on how much people work, spend, and save is a key issue for cash transfer programs, income tax credits, and welfare programs, particularly upon labor supply. Nevertheless, estimating the effects of unearned income is difficult because income is not randomly assigned and exogenous changes in meaningful amounts of income are quite rare and hard to identify. Researchers often end up assuming either spousal income or property income is exogenous and try to use that to estimate the effects of unearned income - obviously it is a problematic assumption. Here authors exploit the Massachusetts’ lottery winners in the mid-eighties. The size of the prize won in the lottery is random for someone who wins a prize, so researchers were able to compare recipients of different prize amounts to measure the impact of lottery cash transfers of different sizes on labor market outcomes, consumption, and savings behavior. …show more content…

They quoted experiment data from some authoritative surveys, and then, analyze them with unearned income. The authors also addressed the issues in the previous research. They have six years of accurate post-lottery earnings data from the Social Security Administration, and the winners are on average 10 years into their 20 years of payments. This addresses the time constraint issues of the Kaplan (1985) lottery study; “only collected data on economic behavior immediately prior and immediately subsequent to the lottery winning, with limited controls”

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