How 'free money' helped low-income workers stay employed | Cornell Chronicle

"New research co-authored by a Cornell expert in industrial relations challenges that assumption, finding that a modest tax benefit in Canada - similar to the U.S. Earned Income Tax Credit (EITC) - encouraged low-income workers to stay employed. Single workers with young children and those receiving social assistance benefited most, suggesting the tax refunds - about 700 Canadian dollars ($500) on average - either helped them to cover the fixed costs of working, such as child care and transportation, or allowed them to work more without losing welfare benefits."

"The findings are relevant to broader policy debates about government transfers to low-income workers and guaranteed basic income, the researchers said, and suggest opportunities to simplify complex and stigmatizing welfare systems. "Low-income workers are more likely to stay employed if they receive an unanticipated cash transfer, rather than leave the labor market, as most people worry they will and theory predicts," said Dionne Pohler , the David and Alexandra Lipsky Professor in Dispute Resolution and Labor Relations in the ILR School."

A modest refundable tax credit similar to the U.S. Earned Income Tax Credit increased employment among low-income Canadians. Single workers with young children and recipients of social assistance experienced the largest benefits. Average refunds were about 700 Canadian dollars (roughly $500), which covered fixed job-related costs like child care and transportation or enabled additional work without forfeiting welfare benefits. Unanticipated cash transfers made low-income workers more likely to remain employed rather than exit the labor market. Low public awareness and limited understanding of the Working Income Tax Benefit reduced its effectiveness as a work incentive. The results point to opportunities to simplify welfare systems and redesign transfers.

Read at Cornell Chronicle