Once upon a time, in a kingdom not so far away, there lived a King who was greatly troubled by a small proportion of his subjects.
They were poor, and many did not work. The King believed they should find jobs or leave his kingdom. Unfortunately, they were his subjects, and he could not simply banish them.
So, he decided to make their lives sufficiently difficult that they would either find work or go somewhere else.
The King believed strongly in incentives. He understood that people responded to rewards and penalties, and he was determined to put this knowledge to good use.
He began with earnings.
He decided that anyone receiving assistance could earn only about 6% of what a full-time minimum-wage worker earned before the King began taking away their benefits. He called this an incentive to work.
Next, he restricted the training they could undertake. He did not want people spending too much time preparing for work when they could be looking for it.
He then turned his attention to their living arrangements. If two people moved in together to share expenses, he reduced their assistance. People who could save money by living together, he reasoned, should need less help.
He also placed limits on what they could save. Savings were evidence that they did not need assistance. Help from relatives could reduce their benefits too. The King was determined that his subjects should become independent, and he was suspicious of anything that might make their lives more comfortable.
Over eight long years, he allowed the purchasing power of their assistance to decline. He restricted how long they could travel outside the kingdom while remaining eligible for help. He introduced rules that made it more difficult for people to join together to pursue certain opportunities. He tightened access to assistance for newcomers.
The King was pleased with his work. He had discouraged dependence, strengthened incentives and ensured that assistance would never be mistaken for an attractive alternative to employment.
Meanwhile, something else was happening in the kingdom.
Wages were rising.
At first, the King regarded this as excellent news. The rewards of employment were becoming greater while assistance was becoming less generous. The difference between working and not working had grown enormously.
Surely no one could now question the strength of his incentives.
And he was right about one thing.
For someone receiving assistance, the financial reward from finding full-time employment had become much greater. For someone already working, the financial sacrifice involved in leaving employment for assistance had also become much greater.
The King had created a powerful incentive in both directions: to leave assistance for work and to remain employed rather than seek assistance.
But something unexpected happened.
Many of his poorest subjects still could not find work.
Those who wanted jobs explained that they could not afford transportation, appropriate clothing, equipment or the training they needed. Some had difficulty maintaining a telephone or a stable address. Others had been out of work so long that employers were reluctant to consider them.
Those who wanted to move elsewhere explained that moving required money. They could not save enough to relocate, and accepting help from relatives could cost them benefits.
Those who wanted to share accommodation found that some of the savings were cancelled by reductions in assistance. Those who wanted to improve their qualifications discovered that the rules discouraged the training they needed.
The King was furious.
There were jobs available, he said. Wages had never been better. The difference between assistance and employment had never been greater.
What more incentive could anyone possibly need?
His advisers agreed that the incentive to work had grown stronger.
But they pointed out that the higher wages had also made jobs more attractive to everyone else.
People with stable housing, reliable transportation, recent experience, qualifications and money for the necessities of job hunting were now competing for those same positions.
Indeed, if wages became high enough to provide a genuinely livable income, those jobs might become more desirable still. Employers could have more applicants from whom to choose, including people who were already employed but looking for better opportunities.
The King’s poorest subjects would have even more reason to want those jobs, but they might find themselves even further back in the queue.
The King was puzzled.
How could making work more rewarding possibly make it harder for poor people to find employment?
His advisers explained that there were two sides to the employment relationship.
Workers decided whether they wanted jobs. Employers decided whom they wanted to hire.
The King had concentrated almost entirely on the first decision.
He had made the rewards of working greater and the consequences of not working more severe. But he had done very little to make his poorest subjects more attractive to employers.
In fact, he had made matters worse.
By preventing them from saving, discouraging training, penalizing shared accommodation, restricting help from relatives and allowing their incomes to deteriorate, he had weakened their ability to compete.
The King objected that he could hardly be expected to reward people for not working.
His advisers suggested that this was precisely the misunderstanding.
Helping someone afford transportation, acquire qualifications, maintain housing or save for a move was not necessarily rewarding unemployment. It might be what made employment possible.
They also pointed out that the enormous growth in wages relative to assistance had created an opportunity.
The King could now improve assistance substantially without coming close to eliminating the financial advantage of full-time employment.
He could preserve strong incentives to work while giving his poorest subjects some of the resources they needed to obtain work.
The King thought this sounded suspiciously like making assistance more attractive.
His advisers replied that making poverty less punishing was not the same as making employment less rewarding.
Besides, they explained, the King had confused the incentive to seek employment with the capacity to secure it.
The King reminded them that people responded to incentives.
Of course they did, said his advisers. But incentives were not magic. A person could desperately want a job and still be unable to persuade an employer to hire them.
Making people want jobs more did not necessarily make employers want them more.
The King considered this an unnecessarily complicated distinction.
He preferred a simpler explanation.
If people were not finding work, their incentives could not be strong enough.
And so, he continued to make life more difficult for those he wanted to become independent.
As wages rose, jobs became more rewarding and, in some cases, more competitive. As assistance declined in value, his poorest subjects became less able to compete for them.
The King regarded the widening gap between wages and assistance as proof of his success. He did not consider that the same gap might also measure how far his poorest subjects had fallen behind.
Each year, he pointed to the growing rewards of employment.
Each year, his advisers pointed to the diminishing resources of those who could not obtain it.
And each year, the King took their failure as further proof that his policies were necessary.
Finally, one of his subjects suggested that perhaps the King should stop trying to make people more desperate to work and start trying to make them more capable of working.
But the King had already decided what an incentive was.
And, being King, he saw no reason to change his mind.