ABSTRACT
The unemployment trap theorem states certain behaviour of welfare recipients resulting in permanent welfare dependency. In order to find out whether people really got trapped by the incentive structure at the interface of the labour market and the welfare state one has to analyze the unemployment trap theorem with the help of longitudinal data. In order to analyse the problem-generating effects of the unemployment trap, people must probe the motives and actual behaviour of job seekers at the intersection of social assistance programmes and the labour market. Since the level of public social assistance is only slightly lower than the earned income which the unemployed are likely to receive as an alternative and, since these payments are discontinued if the jobless take up work, employment take-up brings no relevant increase in benefits. The unemployment trap theorem stated that, due to an insufficient difference between social assistance payments and wages, there is no incentive to leave social assistance.
