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An In‐Work Payment with an Hours Threshold: Labour Supply and Social Welfare

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  • JOHN CREEDY

Abstract

This paper examines the effect on a measure of social welfare of an in‐work payment, involving a discontinuity at an hours threshold. Social welfare is defined in terms of individuals' utilities, which depend on leisure and net income. The in‐work payment augments a modified minimum income guarantee having two tax rates. Numerical simulations, which ensure that a fixed amount of net revenue per person is collected by the government, show that social welfare falls systematically as the extent of the discontinuity increases, and as the hours threshold, at which the jump in net income occurs, increases. Eliminating the discontinuity resulting from the in‐work payment, therefore, improves social welfare.

Suggested Citation

  • John Creedy, 2005. "An In‐Work Payment with an Hours Threshold: Labour Supply and Social Welfare," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 367-377, December.
    • Handle: RePEc:bla:ecorec:v:81:y:2005:i:255:p:367-377
    DOI: 10.1111/j.1475-4932.2005.00275.x
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    References listed on IDEAS

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    1. Lambert, Peter J., 1985. "Endogenizing the income distribution: The redistributive effect, and Laffer effects, of a progressive tax-benefit system," European Journal of Political Economy, Elsevier, vol. 1(1), pages 3-20.
    2. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    3. Yoram Amiel & John Creedy & Stan Hurn, 1999. "Measuring Attitudes Towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
    4. Duncan, Alan & Giles, Christopher, 1996. "Labour Supply Incentives and Recent Family Credit Reforms," Economic Journal, Royal Economic Society, vol. 106(434), pages 142-155, January.
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    1. Luis Ayala & Milagros Paniagua, 2019. "The impact of tax benefits on female labor supply and income distribution in Spain," Review of Economics of the Household, Springer, vol. 17(3), pages 1025-1048, September.
    2. John Creedy & Joseph Mercante & Penny Mok, 2018. "The Labour Market Effects of ‘Working for Families’ In New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(2), pages 211-231, June.
    3. John Creedy & Penny Mok, 2017. "Labour supply in New Zealand and the 2010 tax and transfer changes," New Zealand Economic Papers, Taylor & Francis Journals, vol. 51(1), pages 60-78, January.
    4. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Group Publishing Limited.
    5. Mike Brewer & Marco Francesconi & Paul Gregg & Jeffrey Grogger, 2009. "Feature: In‐work Benefit Reform in a Cross‐National Perspective ‐ Introduction," Economic Journal, Royal Economic Society, vol. 119(535), pages 1-14, February.
    6. John Creedy & Penny Mok, 2017. "Labour supply in New Zealand and the 2010 tax and transfer changes," New Zealand Economic Papers, Taylor & Francis Journals, vol. 51(1), pages 60-78, January.

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