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Workfare and Trade Unions: Labor Market Repercussions of Welfare Reform

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Author Info
Ronnie Schoeb ()

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Abstract

Workfare proposals concentrate on the work incentives for welfare recipients, thus focusing on the labor supply side. This paper analyzes the effects workfare has on labor demand when the labor market is unionized. As workfare reduces the number of recipients of public financial assistance, a workfare regime, as opposed to a welfare system, weakens the outside option of trade unions in wage negotiations. It is shown that revenue-neutral workfare enforcement where any surpluses are rebated by i) reducing the income tax or ii) increasing a workers' tax credit, unambiguously decreases gross wage rates and thus decreases equilibrium unemployment. Though trade union members may be worse off as a consequence of workfare enforcement, their compensation for the wage reduction is highest when the revenue-neutral rebate of savings is used to increase worker-specific tax credits.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 942.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_942

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Related research
Keywords: workfare; welfare reform; trade unions; involuntary unemployment;

Other versions of this item:

Find related papers by JEL classification:
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September. [Downloadable!] (restricted)
  2. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
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  3. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
    Other versions:
  4. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March. [Downloadable!] (restricted)
  5. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christian Holzner & Volker Meier & Martin Werding, 2006. "Workfare, Monitoring, and Efficiency Wages," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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