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Chapter 11

Chapter 11

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Published by Steve Council

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Published by: Steve Council on Nov 29, 2011
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CHAPTER 11
by J. Sebastian Leguizamon and Anthony C. Gregory
INCREASING THE WORKINCENTIVES OF THE WORKING POOR:A WELFARE ANALYSIS
 
 NLEASHING
 APITALISM 
 
 
 3
11
I
 NCREASING THE
W
ORK 
I
 NCENTIVES OFTHE
W
ORKING
P
OOR 
: A W
ELFARE
A
 NALYSIS
 
 J. Sebastian Leguizamon
and
 Anthony Gregory
As it has been mentioned before in this book, economic growth is the result of a process by which economic inputs are converted into economic outcomes. Economic growthcan be achieved by either increasing the inputs to production or making the inputs more productive. However, increasing the level of capital investment alone is not sufficient to promote sustained growth. For instance, an economy’s investment in new and better machines becomes useless when it lacks the necessary workers to operate them. Thus, it is important tohave willing individuals capable of fully exploiting the benefits of capital investment.However, we often observe able-bodied adults not willing to participate in the labor force,leaving unrealized productivity gains on the table.Why do so many individuals opt out of the labor force? Although some individuals are pursuing unpaid productive endeavors, many are not. It is these individuals whose behavior affects the possibility for economic growth. As pointed out earlier, institutions play animportant role in economic growth. Institutional structures that provide incentives conduciveto economic growth, including incentives to participate in the labor force, are heavilyinfluenced by public policy. Consequently, it is imperative to adopt economic policies thatalign worker’s incentives with an environment conducive to economic growth.Currently, a relatively low number of able South Carolinians participate in the state’slabor force. While some not participating are students, stay-at-home spouses, or retireesenjoying a well-earned respite from work, a significant number are relying on state andfederal aid instead of employment. Most troublesome, this is largely due to the state’s currentdesign of aid programs. If South Carolina can right its public aid programs, the state will bewell on its way to achieving its full economic potential.
O
N THE
O
UTSIDE OF THE
E
QUATION
 
The unemployment rate is often cited as a primary measure of economic health, andtypically portrayed as a snapshot of how efficiently a labor market is matching willingworkers with the economy’s need for productive labor resources. The rate is calculated as the
 
C. Gregory
 

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