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Does Work Pay in France? Monetary Incentives, Hours Constraints and the Guaranteed Minimum Income

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Author Info

  • 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)

  • David Margolis

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

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 detailedmanner. 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 elasticitiesfor 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 recently introduced negative income tax (Prime pour l'emploi), seems to be an exception.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00202299.

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Date of creation: Jul 2008
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Publication status: Published, Journal of Public Economics, 2008, 92, 7, 1669-1697
Handle: RePEc:hal:cesptp:halshs-00202299

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Related research

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

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References

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  1. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, The Earned Income Tax Credit, And The Labor Supply Of Single Mothers," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(3), pages 1063-1114, August.
  2. Marc Gurgand & David Margolis, 2001. "RMI et revenus du travail : une évaluation des gains financiers à l'emploi," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 346(1), pages 103-122.
  3. Guy Laroque & Bernard Salanie, 2002. "Labour market institutions and employment in France," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 17(1), pages 25-48.
  4. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, Elsevier, vol. 82(1), pages 115-146, October.
  5. Robert Moffitt, 2002. "Welfare Programs and Labor Supply," NBER Working Papers 9168, National Bureau of Economic Research, Inc.
  6. Joseph G. Altonji & Christina H. Paxson, 1992. "Labor Supply, Hours Constraints, and Job Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 27(2), pages 256-278.
  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, Programme National Persée, vol. 160(4), pages 49-78.
  8. Shulamit Kahn & Kevin Lang, 1996. "Hours Constraints and the Wage/Hours Locus," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 29(s1), pages 71-75, April.
  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 153-61, January.
  10. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 468, University of Warwick, Department of Economics.
  11. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "Minimum Wages and Employment in France and the United States," NBER Working Papers 6996, National Bureau of Economic Research, Inc.
  12. Eissa, Nada & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2008. "Evaluation of four tax reforms in the United States: Labor supply and welfare effects for single mothers," Journal of Public Economics, Elsevier, Elsevier, vol. 92(3-4), pages 795-816, April.
  13. Robert A. Moffitt, 2003. "The Negative Income Tax and the Evolution of U.S. Welfare Policy," NBER Working Papers 9751, National Bureau of Economic Research, Inc.
  14. Bernard Salanié & Guy Laroque, 1999. "Prélèvements et transferts sociaux : une analyse descriptive des incitations financières au travail," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 328(1), pages 3-19.
  15. William T. Dickens & Shelly J. Lundberg, 1985. "Hours Restrictions and Labor Supply," NBER Working Papers 1638, National Bureau of Economic Research, Inc.
  16. Vassilis A. Hajivassiliou and Paul A. Ruud., 1993. "Classical Estimation Methods for LDV Models Using Simulation," Economics Working Papers, University of California at Berkeley 93-219, University of California at Berkeley.
  17. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 1997. "Minimum Wages and Youth Employment in France and the United States," NBER Working Papers 6111, National Bureau of Economic Research, Inc.
  18. Marc Gurgand & David Margolis, 2000. "Minima Sociaux et Revenus du Travail en France," Working Papers, Centre de Recherche en Economie et Statistique 2000-62, Centre de Recherche en Economie et Statistique.
  19. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  20. Altonji, Joseph G & Paxson, Christina H, 1988. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Trade-Offs," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 6(2), pages 254-76, April.
  21. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  22. Abowd, John M. & Kramarz, Francis & Margolis, David N. & Philippon, Thomas, 2000. "The Tail of Two Countries: Minimum Wages and Employment in France and the United States," IZA Discussion Papers 203, Institute for the Study of Labor (IZA).
  23. MARGOLIS, David N., 1995. "Cohort Effects and Returns to Seniority in France," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9559, Universite de Montreal, Departement de sciences economiques.
  24. Thomas Piketty, 1998. "L'impact des incitations financières au travail sur les comportements individuels : une estimation pour le cas français," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 132(1), pages 1-35.
  25. Shulamit Kahn & Kevin Lang, 1988. "The Effects of Hours Constraints on Labor Supply Estimates," NBER Working Papers 2647, National Bureau of Economic Research, Inc.
  26. Denis Fougère & Laurence Rioux, 2001. "Le RMI treize ans après : entre redistribution et incitations," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 346(1), pages 3-12.
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Citations

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Cited by:
  1. Olivier Bargain & Karina Doorley, 2009. "Caught in the Trap? The Disincentive Effect of Social Assistance," Working Papers, School Of Economics, University College Dublin 200906, School Of Economics, University College Dublin.
  2. Terracol, Antoine, 2009. "Guaranteed minimum income and unemployment duration in France," Labour Economics, Elsevier, Elsevier, vol. 16(2), pages 171-182, April.
  3. Olivier Bargain & Karina Doorley, 2014. "Putting Structure on the RD Design: Social Transfers and Youth Inactivity in France," AMSE Working Papers 1406, Aix-Marseille School of Economics, Marseille, France, revised 23 Feb 2014.
  4. Richard Blundell & Antoine Bozio & Guy Laroque, 2011. "Extensive and intensive margins of labour supply: working hours in the US, UK and France," IFS Working Papers, Institute for Fiscal Studies W11/01, Institute for Fiscal Studies.
  5. 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).

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