# The Welfare versus Work Paradox

## TL;DR

This paper explores how countries can maintain work incentives while providing welfare without making welfare more attractive than working.

## Contribution

The novelty lies in analytically showing that welfare becomes preferable to work when wages and benefits near subsistence levels.

## Key findings

- Welfare becomes preferable to work when wages and benefits approach subsistence levels.
- To maintain work incentives, minimum wages must stay above subsistence thresholds.

## Abstract

How can countries balance work incentives and access to welfare without violating the principle that work shall always be strictly preferred to welfare? In a context in which wages stagnate or drop, and benefit levels are reduced due to austerity measures, the welfare versus work paradox arises. This research shows analytically that when both wages and benefits approach the subsistence level, welfare becomes preferable to work, violating the work incentive principle. The policy implication of this result is that, to maintain the validity of the work incentive principle, minimum wages must be kept above the subsistence threshold.