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Preferences and labor supply effects of benefits: the case of income-based Jobseeker’s Allowance

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  • P Simmons
  • F Zantomio

Abstract

The UK income support system offers a guaranteed income level to single adults available for full time work so long as both earnings and hours worked are below a threshold level. In this paper we examine the effects of this on labour supply. We show that the restriction on hours worked is irrelevant to the household choices and will never bind. We then look for conditions on preferences under which it is possible to order households by preferences or the wage in such a way that all claimants are lower in the order. If there is a common wage and preferences satisfy a single crossing condition property there is such an ordering in which the most work averse are claimants. If preferences are common but the wage rates are heterogeneous then if preferences are quasilinear in leisure there is also an ordering with low wage households being claimants. With both wage rate and preferences heterogeneity these restrictions need to be combined to monotonically order the population.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 10/09.

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Date of creation: Jun 2010
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Handle: RePEc:yor:yorken:10/09

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Keywords: unemployments bene?fit; shirkers; labour supply;

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  1. 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.
  2. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  3. 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.
  4. Mike Brewer, 2001. "Comparing in-work benefits and the reward to work for families with children in the US and the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 22(1), pages 41-77, January.
  5. Hilary Hoynes & Richard Blundell, 2001. "Has "In-Work" Benefit Reform Helped the Labour Market?," NBER Working Papers 8546, National Bureau of Economic Research, Inc.
  6. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December.
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