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

  • 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, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, IRES - Institut de Recherches Economique et Sociales)

  • David Margolis

    ()

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris I - Panthéon-Sorbonne, IZA - Institute for the Study of Labor)

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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00193282.

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Date of creation: Jan 2005
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Handle: RePEc:hal:cesptp:halshs-00193282
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  1. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 33-58.
  2. Robert Moffitt, 2002. "Welfare Programs and Labor Supply," NBER Working Papers 9168, National Bureau of Economic Research, Inc.
  3. 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.
  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. 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.
  6. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  7. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  8. David N. Margolis, 1995. "Cohort Effects and Returns to Seniority in France," CIRANO Working Papers 95s-46, CIRANO.
  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. Hajivassiliou, Vassilis A & Ruud, Paul A., 1993. "Classical Estimation Methods for LDV Models Using Simulation," Department of Economics, Working Paper Series qt3cg196fr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. Marc Gurgand & David Margolis, 2000. "Minima Sociaux et Revenus du Travail en France," Working Papers 2000-62, Centre de Recherche en Economie et Statistique.
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