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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

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/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. Gurgand, M. & Margolis, D., 2001. "RMI et revenus du travail : une evaluation des gains financiers a l'emploi," Dossiers de recherche- 09, Centre d'etudes de l'emploi.
  2. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 427-472 National Bureau of Economic Research, Inc.
  3. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
  4. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS) 468, University of Warwick, Department of Economics.
  5. Marc Gurgand & David Margolis, 2000. "Minima Sociaux et Revenus du Travail en France," Working Papers 2000-62, Centre de Recherche en Economie et Statistique.
  6. Bruce D. Meyer & Dan T. Rosenbaum, 1998. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," JCPR Working Papers 32, Northwestern University/University of Chicago Joint Center for Poverty Research.
  7. 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.
  8. Vassilis A. Hajivassiliou and Paul A. Ruud., 1993. "Classical Estimation Methods for LDV Models Using Simulation," Economics Working Papers 93-219, University of California at Berkeley.
  9. MARGOLIS, David N., 1995. "Cohort Effects and Returns to Seniority in France," Cahiers de recherche 9559, Universite de Montreal, Departement de sciences economiques.
  10. Kahn, Shulamit & Lang, Kevin, 1991. "The Effect of Hours Constraints on Labor Supply Estimates," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 605-11, November.
  11. 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 ?," IDEP Working Papers 0311, Institut d'economie publique (IDEP), Marseille, France.
  12. Joseph Altonji & Christina Paxson, 1987. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Tradeoffs," Working Papers 594, Princeton University, Department of Economics, Industrial Relations Section..
  13. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-92, February.
  14. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  15. 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, vol. 132(1), pages 1-35.
  16. Bernard Salanié & Guy Laroque, 1999. "Prélèvements et transferts sociaux : une analyse descriptive des incitations financières au travail," Économie et Statistique, Programme National Persée, vol. 328(1), pages 3-19.
  17. Shulamit Kahn & Kevin Lang, 1996. "Hours Constraints and the Wage/Hours Locus," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 71-75, April.
  18. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1998. "Minimum Wages and Employment in France and the United States," Papiers du Laboratoire de Microéconomie Appliquée 1998-12, Université Panthéon-Sorbonne (Paris 1).
  19. 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).
  20. Robert Moffitt, 2002. "Welfare Programs and Labor Supply," NBER Working Papers 9168, National Bureau of Economic Research, Inc.
  21. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  22. Joseph Altonji & Christina Paxson, 1990. "Labor Supply, Hours Constraints and Job Mobility," Working Papers 651, Princeton University, Department of Economics, Industrial Relations Section..
  23. Guy Laroque & Bernard Salanie, 2002. "Labour market institutions and employment in France," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 25-48.
  24. Denis Fougère & Laurence Rioux, 2001. "Le RMI treize ans après : entre redistribution et incitations," Économie et Statistique, Programme National Persée, vol. 346(1), pages 3-12.
  25. Nada Eissa & Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "Evaluation of Four Tax Reforms in the United States: Labor Supply and Welfare Effects for Single Mothers," NBER Working Papers 10935, National Bureau of Economic Research, Inc.
  26. 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.
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Citations

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Cited by:
  1. Antoine Terracol, 2009. "Guaranteed minimum income and unemployment duration in France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00607219, HAL.
  2. Olivier Bargain & Karina Doorley, 2009. "Caught in the Trap? The Disincentive Effect of Social Assistance," Working Papers 200906, School Of Economics, University College Dublin.
  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. 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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