Welfare Trap - Differential Definitions

Differential Definitions

The term used for this concept varies depending on country. In the United States, where government benefit payments are colloquially referred to as "welfare" (e.g. a person is "on welfare"), the welfare trap often indicates that a person is completely dependent on benefits, with little or no hope of self-sufficiency.

The welfare trap is also known as the unemployment trap or poverty trap in the UK, with both terms frequently being used interchangeably as they often go hand-in-hand, though there are subtle differences.

In other contexts, the terms "welfare trap" and "poverty trap" are clearly distinguished. For example, a Southern African Regional Poverty Network report on social protection clarifies: ... poverty trap to mean a structural condition from which people cannot rescue themselves despite their best efforts. A welfare trap in this context, by contrast, refers to the barrier created by means tested social grants that have in built perverse incentives. This South African definition is typically used with regard to developing countries.

This concept may include other adverse effects of welfare, e.g., on the family structure: welfare may encourage the increase in the numbers of single-mother families and divorce rates, as individuals see a distinct benefit in this lifestyle.

In the UK, there is a distinction between two concepts within the welfare trap:

• the unemployment trap occurs when the net income difference between low-paid work and unemployment benefits is less than work related costs, discouraging movement into work;
• the poverty trap refers to the position when in-work income-tested benefit payments are reduced as income rises, combined with income tax and other deductions, with the effect of discouraging higher paid work whether that involves working longer hours or acquiring skills.