Public policies designed to help unskilled workers sometimes have unintended consequences. For example, several public assistance programs intended to assist people with few marketable skills actually impose extremely high penalties when earnings rise. That is, as a family’s income increases beyond a certain point, most or all of their benefits from the support program are lost because program “marginal tax rates” are high. That is, for each additional (or marginal) dollar earned, program benefits fall by a substantial amount, sometimes by even more than the single dollar earned. This can discourage family members from working, or working full-time. An extreme example of this “earnings penalty” is the loss of Medicaid health insurance benefits. Prior to the 1987 expansions of Medicaid eligibility for children, a family would lose all its Medicaid benefits if its income increased beyond the welfare qualification threshold. Common sense tells us that such severe earnings penalties may deter unskilled individuals from entering the workforce or working their way up to higher paying jobs. In this study, Dr. Aaron Yelowitz, an economist at UCLA, examines the effects of Medicaid reform on the work incentives and earnings of welfare recipients. Using ten years of Current Population Survey data, Dr. Yelowitz finds that the prospect of losing Medicaid benefits in fact discouraged labor force participation. In addition, he finds that the expansion of Medicaid eligibility for children in poverty helped to increase employment and to reduce welfare dependency by lowering extremely high marginal tax rates on poor families. The results of Dr. Yelowitz’s research provide a beacon for policymakers to use in shaping current public policies in light of the massive changes in U.S. welfare law over the past four years. By passing the Personal Responsibility and Work Opportunity Reconciliation Act in 1996, Congress recognized the value of work for able-bodied citizens. As welfare law evolves, policymakers must keep a careful watch on program features that can discourage the poor from entering the workforce or undermine the financial assistance such programs are intended to provide.