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

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  • Gurgand, Marc

    ()
    (Paris School of Economics)

  • Margolis, David N.

    ()
    (Paris School of Economics)

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1467.

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Length: 42 pages
Date of creation: Jan 2005
Date of revision:
Publication status: published as 'Does work pay in France? Monetary incentives, hours constraints, and the guaranteed minimum' in: Journal of Public Economics, 2008, 92 (7), 1669-1697
Handle: RePEc:iza:izadps:dp1467

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

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References

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  1. David N. MARGOLIS, 1996. "Cohort Effects and Returns to Seniority in France," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 443-464.
  2. Vassilis A. Hajivassiliou & Paul A. Ruud, 1993. "Classical Estimation Methods for LDV Models Using Simulation," Cowles Foundation Discussion Papers 1051, Cowles Foundation for Research in Economics, Yale University.
  3. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  4. Robert Moffitt, 2002. "Welfare Programs and Labor Supply," NBER Working Papers 9168, National Bureau of Economic Research, Inc.
  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," NBER Working Papers 9751, National Bureau of Economic Research, Inc.
  7. 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.
  8. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 33-58, January.
  9. Euwals, R.W. & Soest, A.H.O. van, 1996. "Desired and Actual Labour Supply of Unmarried Men and Women in the Netherlands," Discussion Paper 1996-23, Tilburg University, Center for Economic Research.
  10. Marc Gurgand & David Margolis, 2000. "Minima Sociaux et Revenus du Travail en France," Working Papers 2000-62, Centre de Recherche en Economie et Statistique.
  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. 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.
  3. 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.

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