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A Good Time for Making Work Pay? Taking Stock of In-Work Benefits and Related Measures across the OECD

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  • Herwig Immervoll
  • Mark Pearson

Abstract

The twin problem of in-work poverty and persistent labour market difficulties of low-skilled individuals has been one of the most important drivers of tax-benefit policy reforms in OECD countries in recent years. Employment-conditional cash transfers to individuals facing particular labour-market challenges have been a core element of “make-work-pay” policies for some time and are now in use in more than half of the OECD countries. They are attractive because they redistribute to low-income groups while also creating additional work incentives. But like all social benefits, they have to be financed, which creates additional economic costs for some. This paper discusses the rationale for in-work benefits (IWB), summarises the main design features of programmes operated in OECD countries, and provides an update of what is known about their effectiveness in terms of reducing inequalities and creating employment. As policies aiming to promote self-sufficiency, wage subsidies and minimum wages share a number of the objectives associated with IWB measures. We review evidence on the effectiveness of minimum wages and wage subsidies and discuss links between these policies and IWBs. Finally, we outline some potential consequences of weakening labour markets for the effectiveness of make-work-pay policies. Le double problème de la pauvreté touchant même les personnes pourvues d’un emploi et de la persistance des difficultés rencontrées par les travailleurs peu qualifiés sur le marché du travail a été l’un des moteurs les plus importants de la réforme des politiques en matière de fiscalité et de prestations menée ces dernières années dans les pays de l’OCDE. Depuis un certain temps, les prestations en espèces subordonnées à l’exercice d’un emploi (accordées aux personnes confrontées à des difficultés particulières sur le marché du travail) sont devenues une composante essentielle des politiques de valorisation du travail. Aujourd’hui, plus de la moitié des pays de l’Organisation les ont mises en place. Ces prestations sont attrayantes car elles ont un effet de redistribution sur les groupes à faible revenu tout en créant de nouvelles incitations à travailler. Mais, à l’instar de toutes les prestations sociales, elles doivent être financées, ce qui alourdit les coûts économiques pour certains. Ce document examine le bien-fondé des prestations soumises à l’exercice d’un emploi, résume les principales caractéristiques de la conception des programmes mis en place dans les pays de l’OCDE, et fait le point de ce que l’on sait de leur efficacité sur le plan de la réduction des inégalités et de la création d’emploi. En tant que mesures destinées à promouvoir l’autonomie économique, les subventions salariales et les salaires minimums ont un certain nombre d’objectifs en commun avec les prestations soumises à l’exercice d’un emploi. Nous passons en revue des données d’observation sur l’efficacité des subventions salariales et des salaires minimums et examinons les liens entre ces mesures et les prestations en question. Enfin, nous mettons en évidence certaines conséquences possibles du fléchissement du marché du travail sur l’efficacité des politiques de valorisation du travail.

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File URL: http://dx.doi.org/10.1787/225442803245
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 81.

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Date of creation: 20 Mar 2009
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Handle: RePEc:oec:elsaab:81-en

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Cited by:
  1. Nicola Brandt, 2012. "Reducing Poverty in Chile: Cash Transfers and Better Jobs," OECD Economics Department Working Papers 951, OECD Publishing.
  2. Mechelen, N. (Natascha) van & Bradshaw, J. (Jonathan), 2012. "GINI DP 50: Child Poverty as a Government Priority: Child Benefit Packages for Working Families, 1992-2009," GINI Discussion Papers 50, AIAS, Amsterdam Institute for Advanced Labour Studies.
  3. Ive Marx & Brian Nolan & Javier Olivera, 2014. "The Welfare State and Anti-Poverty Policy in Rich Countries," Working Papers 1403, Herman Deleeck Centre for Social Policy, University of Antwerp.
  4. Bargain, Olivier & Doorley, Karina, 2009. "In-Work Transfers in Good Times and Bad: Simulations for Ireland," IZA Discussion Papers 4644, Institute for the Study of Labor (IZA).
  5. Immervoll, Herwig, 2009. "Minimum-Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges," IZA Discussion Papers 4627, Institute for the Study of Labor (IZA).
  6. Alessio J. G. Brown & Johannes Koettl, 2012. "Active Labor Market Programs - Employment Gain or Fiscal Drain?," Kiel Working Papers 1785, Kiel Institute for the World Economy.
  7. Eichhorst, Werner & Konle-Seidl, Regina & Koslowski, Alison & Marx, Paul, 2010. "Quantity over Quality? A European Comparison of the Changing Nature of Transitions between Non-Employment and Employment," IZA Discussion Papers 5285, Institute for the Study of Labor (IZA).
  8. Bennmarker, Helge & Calmfors, Lars & Larsson Seim, Anna, 2013. "Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden," Working Paper Series 2013:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  9. Wim Van Lancker & Natascha Van Mechelen, 2014. "Universalism under siege? Exploring the association between targeting, child benefits and child poverty across 26 countries," Working Papers 1401, Herman Deleeck Centre for Social Policy, University of Antwerp.
  10. Stéphanie Jamet & Thomas Chalaux & Vincent Koen, 2013. "Labour Market and Social Policies to Foster More Inclusive Growth in Sweden," OECD Economics Department Working Papers 1023, OECD Publishing.
  11. Immervoll, Herwig, 2012. "Reforming the Benefit System to 'Make Work Pay': Options and Priorities in a Weak Labour Market," IZA Policy Papers 50, Institute for the Study of Labor (IZA).
  12. Sasa Randelovic & Jelena Zarkovic Rakic, 2013. "Improving work incentives in Serbia: evaluation of a tax policy reform using SRMOD," International Journal of Microsimulation, Interational Microsimulation Association, vol. 1(6), pages 157-176.
  13. Koettl, Johannes & Weber, Michael, 2012. "Does Formal Work Pay? The Role of Labor Taxation and Social Benefit Design in the New EU Member States," IZA Discussion Papers 6313, Institute for the Study of Labor (IZA).
  14. Herwig Immervoll & Linda Richardson, 2011. "Redistribution Policy and Inequality Reduction in OECD Countries: What Has Changed in Two Decades?," OECD Social, Employment and Migration Working Papers 122, OECD Publishing.
  15. repec:aia:ginidp:dp50 is not listed on IDEAS
  16. Ferrarini, T. (Tommy) & Nelson, K. (Kenneth) & Höög, H. (Helena), 2012. "GINI DP 49: The Fiscalization of Child Benefits in OECD Countries," GINI Discussion Papers 49, AIAS, Amsterdam Institute for Advanced Labour Studies.
  17. repec:ese:emodwp:em4-09 is not listed on IDEAS

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