Sylvia lives in California and qualifies for the CalWorks program (California’s
ID: 1194465 • Letter: S
Question
Sylvia lives in California and qualifies for the CalWorks program (California’s version of TANF). CalWorks participants can earn $225 per month without having their benefits reduced. Beyond $225, benefits are reduced by 50 cents for every dollar of earnings (a 50% benefit reduction rate). The maximum grant is $725 per month.
a. Suppose Sylvia earns $10 per hour. Use the information above to illustrate Sylvia’s income/leisure options with and without CalWorks. Label your graph carefully!
b. At what level of earnings does the benefit become zero?
c. Suppose in the absence of CalWorks that Sylvia earns $1380 per month. What is her benefit under the CalWorks program?
d. How do you think Sylvia will respond to the program? Will she work more, less, or the same?
Explanation / Answer
Answer to Question (A):
Sylvia qualifies for the CalWorks program and can therefore earn $ 225 per month and retain her maximum benefit under the program.
Refer to the following chart:
Per hour rate in the following chart is assumed to be that of $ 10.
Sr. No. Working hours (per month) Earning (in $) CALworks benefit(in $) Total Earnings (in $)
1. 20 200 725 925
2. 21 210 725 935
3. 22 220 725 945
4. 23 230 722.5 (722 $ 5 cents) 952.5
In the above chart, Sylvia earned an income of $ 220 per month and enjoyed the complete benefit of the CALworks program. When her income exceed $ 225 per month and reached upto $ 230, her benefit reduced at the rate of 50 cent for each dollar earned after that. So, for 5 dollars earned, Sylvia lost 2.5 dollars from the maximum grant amount of $ 725.
Income and leisure options for Sylvia would be that of earning approximately $ 220 per month by working for 22 hours in a month and utilising the complete benefit and having a leisure time as a leftover.
Answer to Question (B):
When Sylvia earns $ 1000 per month by working for 100 hours at the rate of $ 10 per hour, her benefit of $ 725 would become zero.
For the first $225, Sylvia is getting the complete benefit. If we subtract $ 225 from $ 725, we have $ 500. Since the benefit reduces at 50 cents for every additional dollar earned by her, if Sylvia earns $ 1000 per month her benefit would become zero. For earning $ 1000 she has to work for 100 hours in a month at the rate of $10 per hour.
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