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

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  • Marc Gurgand

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, IRES - Institut de Recherches Economique et Sociales)

  • David Margolis

    ()
    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris I - Panthéon-Sorbonne, IZA - Institute for the Study of Labor)

Abstract

Most welfare programs generate high marginal tax rates on labor income. This paper uses a representative sample of individuals on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary gains to employment for welfare recipients. This is based on the distribution of potential monthly earnings faced by each individual, as inferred from the distribution of observed wages and working time. Taking account of the welfare earnings top-up program (intéressement), we find that gains are almost always positive, but that their amount is very low, especially for single mothers. Intéressement is found to have a small impact, because of its provisional nature. Gains are positively related to the probability that a welfare recipient in 1996 will be observed in employment in 1998. Using a simple structural model, we interpret this as a labor supply effect.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00193282.

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Date of creation: Jan 2005
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Handle: RePEc:hal:cesptp:halshs-00193282

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Related research

Keywords: Welfare; labor earnings; transfers; tax-system.;

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References

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  1. Hajivassiliou, Vassilis A & Ruud, Paul A., 1993. "Classical Estimation Methods for LDV Models Using Simulation," Department of Economics, Working Paper Series qt3cg196fr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 33-58.
  3. Euwals, Rob & van Soest, Arthur, 1999. "Desired and actual labour supply of unmarried men and women in the Netherlands," Labour Economics, Elsevier, vol. 6(1), pages 95-118, March.
  4. Moffitt, Robert A., 2002. "Welfare programs and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 34, pages 2393-2430 Elsevier.
  5. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  6. Robert A. Moffitt, 2003. "The Negative Income Tax and the Evolution of U.S. Welfare Policy," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 119-140, Summer.
  7. 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.
  8. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  9. Marc Gurgand & David Margolis, 2000. "Minima Sociaux et Revenus du Travail en France," Working Papers 2000-62, Centre de Recherche en Economie et Statistique.
  10. MARGOLIS, David N., 1995. "Cohort Effects and Returns to Seniority in France," Cahiers de recherche 9559, Universite de Montreal, Departement de sciences economiques.
  11. repec:fth:inseep:2000-62 is not listed on IDEAS
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Cited by:
  1. Anna Laura Mancini, 2008. "Labor Supply Responses of Italian Women to Minimum Income Policies," Working Papers 94, ECINEQ, Society for the Study of Economic Inequality.
  2. Ayala, Luis & Rodriguez, Magdalena, 2006. "The latin model of welfare: Do `insertion contracts' reduce long-term dependence?," Labour Economics, Elsevier, vol. 13(6), pages 799-822, December.
  3. Libertad González Luna, 2005. "Single mothers and incentives to work: The French experience," Economics Working Papers 818, Department of Economics and Business, Universitat Pompeu Fabra.

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