[Concepts]
Here we will redefine variables such as H, Z, b, n etcetera. Also the reduced tax function will be T(.) as opposed to structural T[.]. These redefinitions hold for this chapter 39 and chapter 40 - that together form a reduced form unity.
Definition: Biological subsistence, for survival, is S.
Definition: An economy is a welfare state iff people without income are not left to charity, stealing or death, but get a benefit B. The benefit B has the following properties:
i. the net benefit has the social subsistence level B
S,
ii. people on benefit may not work, [115]
iii. eligible are:
iii-a. permanent benefit recipients (e.g. ‘the elderly’)
iii-b. people able to work but currently unable to earn at least
net B (these people are called ‘the unemployed’).
Remark: it is useful to have category (iii-a) in the model. It introduces a degree of sufficient complexity. When there are levies even under full employment, then it is easier to understand that wrong co-ordination may cause a switch to unemployment. But (iii-a) might count zero people.
Remark: Property (iii-b) has the effect of a legal minimum wage. It sets a floor in the market. We might introduce a benefit threshold (for workers) XB such that S
XB < B, but for expository reasons, we take XB = B.