Dealing with the elusive welfare-to-work issue: The case of poverty traps in Israel

This paper examines one of the problems that faces decision makers in their efforts to move benefit recipients from welfare to work. On the basis of Israeli evidence, the thorny issues of poverty traps and disincentives to work are examined. The findings indicate that very significant poverty traps exist in the basic income maintenance programme in the Israeli social security system. However, unlike the case in many other welfare states, these poverty traps are not a result of the interaction between the benefit and taxation systems but rather are a result of anomalies within the Income Support programme itself. Specifically, the existence of an income ceiling, that is taken into account when calculating the benefit provided to Income Support recipients in work, virtually cancels out any disregards that exist in the programme. This income ceiling is a consequence of the determination of Treasury officials, who took part in the policy-formulating process, to prevent the many low-wage earners in the Israel workforce from being eligible to receive benefits. The poverty traps that are a result of the income ceiling effectively undermine any effort to encourage the movement from welfare to work among Income Support recipients.