Paradoxically, the main way of using financial incentives to increase net labour supply of beneficiaries and move more off the benefit is to toughen the benefit abatement regime.
This increase in the abatement rates on welfare benefits for earned income moves more off the benefit and moves more into full-time employment but still with an ambiguous effect on part-time employment. Some may prefer the benefit over their current part-time job.
The notion that tinkering with financial incentives will not have large effects on labour supply and benefit numbers is not new. Increase in the generosity of welfare benefits with increase the number of applicants.
Tinkering with the details of abatement rates and thresholds has ambiguous labour supply effects because exits from welfare are still offset by new entry onto welfare. The netting the labour supply changes of these diverse groups often leads to welfare reform leading to positive but small change in labour supply. Quantitatively, an old finding is the remarkable lack of effects of financial incentives on welfare participation (Moffitt 1992, 2002).
Under a move up to a 100 per cent benefit abatement rate as shown in Figure 1; arrow 1 in Figure 1 shows that some who were working part-time will now find not working at all to be the more attractive option. The new 100 per cent benefit abatement rate reduces their take-home pay but they enjoy more leisure time.
Figure 1: the labour supply effects of an increase to a 100 per cent benefit abatement rate
Arrow 2 in Figure 1 shows that some part-time workers increase their working hours because working a little more mitigates the reduction in their take-home pay and allow some leisure time.
Arrow 3 in Figure 1 shows that some part-timers return to full-time working hours because of the revised leisure-labour trade off that now makes a somewhat higher take-home pay worthwhile despite reduced leisure time.
Whether net labour supply increases or falls after a rise in the benefit abatement rate to 100 per cent depends on the relative numbers of workers at different points on the budget constraint that are working full-time, not working, and working part-time and the magnitudes of their responses.
Some will stay as they are working either full-time, not working or working part-time. Others supply more labour. Working more hours may increase their take-home pay depending on how productivity they are.
Some part-timers will move to full-time in low paid jobs with take-home pay because of the loss of benefit income, they will enjoy less leisure time and there can be additional costs such as child care.
More productive workers in better paid jobs will take home more in pay by moving to full-time but will enjoy less leisure time. Some workers that were previously working part-time stop working and rely in welfare benefits.
If reduced welfare dependence is the objective, high abatement rates and low abatement thresholds are the path to follow. With a move to 100 per cent abatement of benefits, some leave the welfare system but no one joins it because of the higher abatement rate.
Less generous abatement will see some who claim the benefit while working part-time move to a lower take-home pay. Some will be on a higher take-home pay working full-time. The net labour supply effect is ambiguous because some leave work altogether while others work more hours.
The net labour supply depends on the relative numbers at different points on the budget constraint working full-time, not working, or working part-time and the magnitudes of their respective individual labour supply responses. Some people will stay as they are working full-time, not working or working part-time.
No one who previously did not work is worse off under the benefit abatement rate increase to 100 per cent because they are unaffected by abatement. Some who were working part-time and previously claiming the benefit take-home less but enjoy more leisure as shown by arrow 2 in Figure 1. The remaining part-time workers now take-home more pay but enjoy less leisure because they are working more hours and even full-time as shown by arrow 3 in Figure 1.
The blogs so far
part-one-the-labour-leisure-trade-off-and-the-rewards-for-working
part-two-the-labour-supply-effects-of-welfare-benefit-abatement-rate-changes
part-3-abatement-free-income-thresholds-and-labour-supply
part-4-in-work-tax-credits-and-labour-supply
part-5-higher-abatement-rates-and-labour-supply
Utopia, you are standing in it! 
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