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Does work pay in France? Monetary incentives, hours constraints, and the guaranteed minimum income

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  • Gurgand, Marc
  • Margolis, David N.

Abstract

This paper uses a representative sample of individuals on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary incentives for employment among welfare recipients. Based on the estimated joint distribution of wages and hours potentially offered to each individual, we compute potential gains from working in a very detailed manner. Relating these gains to observed employment, we then estimate a simple structural labor supply model. We find that potential gains are almost always positive but very small on average, especially for single mothers, because of the high implicit marginal tax rates embedded in the system. Employment rates are sensitive to incentives with extensive margin elasticities for both men and women usually below one. Conditional on these elasticities, simulations indicate that existing policies devoted to reducing marginal tax rates at the bottom of the income distribution, such as the intéressement earnings top-up program, have little impact in this population due to their very limited scope. The negative income tax (Prime pour l'emploi), seems to be an exception.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 7 (July)
Pages: 1669-1697

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:7:p:1669-1697

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Web page: http://www.elsevier.com/locate/inca/505578

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References

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  1. V.A. Hajivassiliou & P. A. Ruud, 1993. "Classical Estimation Methods for LDV Models Using Simulation," Econometrics 9311002, EconWPA.
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  7. Cyrille Hagneré & Nathalie Picard & Alain Trannoy & Karine Van der Straeten, 2003. "L’importance des incitations financières dans l’obtention d’un emploi est-elle surestimée ?," Économie et Prévision, Programme National Persée, vol. 160(4), pages 49-78.
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  20. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August.
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Cited by:
  1. Bargain, Olivier & Doorley, Karina, 2009. "Caught in the Trap? The Disincentive Effect of Social Assistance," IZA Discussion Papers 4291, Institute for the Study of Labor (IZA).
  2. Cahuc, Pierre & Carcillo, Stéphane & Rinne, Ulf & Zimmermann, Klaus F., 2013. "Youth Unemployment in Old Europe: The Polar Cases of France and Germany," IZA Discussion Papers 7490, Institute for the Study of Labor (IZA).
  3. Blundell, Richard & Bozio, Antoine & Laroque, Guy, 2011. "Extensive and Intensive Margins of Labour Supply: Working Hours in the US, UK and France," IZA Discussion Papers 6051, Institute for the Study of Labor (IZA).
  4. Olivier Bargain & Karina Doorley, 2014. "Putting Structure on the RD Design: Social Transfers and Youth Inactivity in France," Working Papers halshs-00967329, HAL.
  5. Terracol, Antoine, 2009. "Guaranteed minimum income and unemployment duration in France," Labour Economics, Elsevier, vol. 16(2), pages 171-182, April.

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