Despite earning $5,000 per month, Chris Jones, a single father of two children under 10 years of age, living and working in Santa Fe, New Mexico, quit his tech support job at IT Solutions on September 1, 2016. It was a good financial move.
By quitting early Jones qualified for the earned income tax credit (EITC) and a host of other government support payments unavailable to him if he had worked the full year and earned $60,000.
By leaving the labor market, he now qualified for 2016 benefits of food stamps or SNAP of $2,044, EITC of $974, and New Mexico rental assistance of $1,636. Additionally had Jones continued to work, he would have paid an additional $3,120 in federal income taxes, $980 in state income taxes, $1,200 in social security taxes, after-school day care of $3,852, and family health insurance of $1,200.
In total, assuming a 40-hour work week, Jones would have earned a paltry net $9.60 per hour for the remaining four months of 2016 compared to his $31.25 per hour for the first 8 months of 2016.
Given the myriad of economic incentives for not working, it is not surprising that in 2016, the percentage of the population over age 15 in the labor force dropped to its lowest level since 1976.
As in the case of Jones, one of the chief reasons is that the financial incentives for not working, furnished by federal, state and local governments has soared. Meanwhile the economic inducements for working provided by business enterprises has expanded at a more modest pace.
Between 1990 and 2015, U.S. wages and salaries per worker advanced by 126.6%. Whereas, government transfer payments, including SNAP, Medicaid, EITC, and rent assistance provided to non-workers, or workers with a soft linkage to the labor market, more than tripled at 358.6% per capita. One of the goals of any 2016 tax reform coming from Washington should be closing this gap between the growth in wages and that of transfer payments.