As has been noted by economists of various persuasions (including some econometricians not generally sympathetic to free-market policies), welfare payments may increase long-run unemployment and high birth rates among the poor. This relationship between welfare payments and high birth rates may be observed even when those payments fall far below the costs of supporting a child. The decision to have a child (or to risk an unplanned pregnancy) involves a large number of different costs and benefits, both monetary and non-monetary. The causal effect noted here is specific to the marginal or "borderline" cases; few if any mothers would choose to have a child merely in order to receive a welfare payment.
Insofar as welfare policy is a praxeological cause of unemployment and high birth rates, criticism and anger directed toward the welfare recipients for such behavior is fundamentally misguided. Those recipients are merely responding naturally to the welfare system as it has been structured by authorities, and they can even be viewed in some respects as victims of that system. In contrast, private charities, which are driven by competition to allocate their funds rationally, do not generally have such effects, for reasons that will become clearer in Section 5. Furthermore, welfare subsidies tend to divert funds that would otherwise be allocated to such far more effective forms of private assistance—providing another good illustration of the law of displacement.

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