Analyze the work-incentive effects of the change in benefits

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Assume that the current Disability Insurance (DI) benefit for those who are unable to work is $X per day and that DI benefits go to zero if a worker accepts a job for even 1 hour per week. Suppose that benefit rules are changed so those disabled workers who take jobs that pay less than $X per day receive a benefit that brings their total daily income (earnings plus the DI benefit) up to $X. As soon as their market earnings rise above $X per day, their disability benefits end. Draw the old and new budget constraints (label each clearly) associated with the DI program, and analyze the work-incentive effects of the change in benefits

Reference no: EM13208705

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