poverty trap

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Related to Welfare trap: poverty trap

poverty trap

the situation where a slight increase in earnings leads to an individual or

family being worse off overall as a consequence of losing entitlement to other benefits. People on low incomes may be eligible not only for social security support but may also make lower income tax and National Insurance (NI) contributions. A slight increase in their earnings may lead to the loss of their social security entitlement and put them in a position where they have to pay higher income tax and NI contributions; the slight increase in earnings may be considerably less than the extra amount they have to pay in NI and income tax contributions and their loss of social security support. The existence of a poverty trap is seen to be inevitable where there is a system of means-tested social security benefits. A similar situation exists where single mothers may be considered to be in a poverty trap in so far as a woman in a reasonably well-paid job may have that income jeopardized by the need to pay for childcare. By taking a part-time job or giving up paid work altogether she may be able to look after her child or children, but is likely to lose any occupational benefits, including a pension, as well as her career prospects.

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