Instead of encouraging people to work, however, the benefits systemfails to provide many with meaningful financial reward for low-paidjobs.
The way in which benefit payments are reduced as earnings increasecreates an effective tax rate for low earners that often exceeds 75 percent, and is sometimes 90 per cent or more.
Consider the example of an unemployed single mother on benefits. If shemoves into a part-time minimum-wage job earning 80 per week, herbenefit would be reduced by 60 for a net gain of 20 -little more than 1 per hour. And this is before any additionaltravel or childcare costs associated with working. Not working is oftenthe most sensible financial choice for her.
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