Any form of obstacle to people on low incomes that prevents them from improving their position, particularly paradoxical situations brought about by taxation and social security payment systems.
Traditional social protection systems for the unemployed have often embodied poverty traps, with disincentives to taking steps to move out of unemployment. Some of these include:
- The greater gross income from work is more than offset by the costs of working (childcare, clothing, transport, food while at work, etc.) and the loss of benefits which are not usually quantified (free school meals, free prescriptions and eye tests, cheap admission to events, concessionary fares for transport, special rates for non-income related taxes, etc.); in the initial stages of a new job, the costs of working can cripple your finances before you even receive your first pay packet.
- Taking casual or temporary work may involve, as well as a loss of benefits for the time worked (or the week in which you worked a couple of days or the month in which you worked for a week ...) disruption to the normal pattern of payments; when you are living on a subsistence budget, a couple of weeks of zero income while the paperwork gets sorted can be extremely unpleasant. Since society needs a pool of casual labour, and since this sort of activity can be both a direct route to more lasting employment or self-employment and a way out of the unemployed mindset, this is a particularly damaging phenomenon.
- The conditions for claiming benefit may actually make it more difficult to seek work. In the UK, people receiving income support may not travel abroad without forfeiting benefit - even to travel to a job interview.
In addition to these failings of public social policy and the general societal issues outlined in thunk's writeup, there are a number of additional "private sector" economic poverty traps, basically coming down to the fact that the poor pay more for things: the only sources of credit tend to be expensive (catalogues or loan sharks, unless there is a local credit union), without liquidity it is not possible to buy goods cheaper in bulk quantities (and you are less likely to have the room to store them either), and if you can't run a car you may not be able to take advantage of cheaper out-of-town shopping and are more likely to have to rely on relatively expensive small corner shops.