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

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  • Marc Gurgand

    ()
    (PSE, CREST and IRES)

  • David Margolis

    ()
    (TEAM)

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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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/Bla05002.pdf
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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla05002.

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Length: 42 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:mse:wpsorb:bla05002

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

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References

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  1. 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.
  2. 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.
  3. MARGOLIS, David N., 1995. "Cohort Effects and Returns to Seniority in France," Cahiers de recherche 9559, Universite de Montreal, Departement de sciences economiques.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Marc Gurgand & David Margolis, 2000. "Minima Sociaux et Revenus du Travail en France," Working Papers 2000-62, Centre de Recherche en Economie et Statistique.
  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. 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.
  11. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
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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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