Policy to reduce poverty has often foundered on the issue of work incentives. The issue is a manifestation of the traditional conflict between equity and efficiency; the redistribution of income from higher to lower income people typically leads to reduced incentives for both groups to supply labor to the market, or to exercise initiative. This conflict is also known as the "poverty trap"--with income transfer (welfare) programs in place, those with low earned income have a reduced incentive to seek and accept employment, and as a result appear trapped in poverty.

This paper discusses the primary policy strategies for reducing poverty while maintaining work incentives that have been analyzed in the literature. These strategies have been presented in a context in which a structure of income support policies and labor market constraints already exists. Existing policies typically have two characteristics: they are categorical and piecemeal in their coverage, and they contain serious ...