She is 139 Years Old!

The Power of Incentives

Greg Mankiw excerpts a staggering fact from an NBER study.

In 1983, the most poorly paid 20 percent of workers were more likely to put in long work hours than the top paid 20 percent. By 2002, the best-paid 20 percent were twice as likely to work long hours as the bottom 20 percent.

I wonder how big an effect the tax rate cuts had on this.

In the early 80s, if I remember correctly, the top marginal rate in the US was around 70%. By the late 80s, the Reagan Administration had slashed it down to 28%. The top rate didn't exceed 40% in the 90s. That must have attracted the high-skill labor to put in more hours.

The flip side of this whole deal is to not have generous welfare since it can, and it does, turn people off from work. That money is there to help those in need--it should not become a lifestyle choice.


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