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Does Work Pay in France? Monetary Incentives, Hours Constraints 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)

  • David Margolis

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

This paper uses a representative sample of individuals on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary incentives for employment among welfare recipients. Based on the estimated joint distribution of wages and hours potentially offered to each individual, we compute potential gains from working in a very detailedmanner. Relating these gains to observed employment, we then estimate a simple structural labor supply model. We find that potential gains are almost always positive but very small on average, especially for single mothers,because of the high implicit marginal tax rates embedded in the system. Employment rates are sensitive to incentives with extensive margin elasticitiesfor both men and women usually below one. Conditional on these elasticities, simulations indicate that existing policies devoted to reducing marginal tax rates at the bottom of the income distribution, such as the intéressement earnings top-up program, have little impact in this population due to their very limited scope. The recently introduced negative income tax (Prime pour l'emploi), seems to be an exception.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00202299.

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Date of creation: Jul 2008
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Publication status: Published, Journal of Public Economics, 2008, 92, 7, 1669-1697
Handle: RePEc:hal:cesptp:halshs-00202299
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00202299
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  1. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 427-472 National Bureau of Economic Research, Inc.
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  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  4. 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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  8. 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.
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  10. Joseph G. Altonji & Christina H. Paxson, 1992. "Labor Supply, Hours Constraints, and Job Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 27(2), pages 256-278.
  11. Nada Eissa & Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "Evaluation of Four Tax Reforms in the United States: Labor Supply and Welfare Effects for Single Mothers," NBER Working Papers 10935, National Bureau of Economic Research, Inc.
  12. Kahn, Shulamit & Lang, Kevin, 1991. "The Effect of Hours Constraints on Labor Supply Estimates," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 605-11, November.
  13. Abowd, John M & Kramarz, Francis & Margolis, David N, 1999. "Minimum Wages and Employment in France and the United States," CEPR Discussion Papers 2159, C.E.P.R. Discussion Papers.
  14. Shulamit Kahn & Kevin Lang, 1996. "Hours Constraints and the Wage/Hours Locus," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 71-75, April.
  15. Joseph Altonji & Christina Paxson, 1987. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Tradeoffs," Working Papers 594, Princeton University, Department of Economics, Industrial Relations Section..
  16. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS) 468, University of Warwick, Department of Economics.
  17. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  18. 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.
  19. Cyrille Hagneré & Nathalie Picard & Alain Trannoy & Karine Van der Straeten, 2003. "L’importance des incitations financières dans l’obtention d’un emploi est-elle surestimée ?," Économie et Prévision, Programme National Persée, vol. 160(4), pages 49-78.
  20. Gurgand, M. & Margolis, D., 2001. "RMI et revenus du travail : une evaluation des gains financiers a l'emploi," Dossiers de recherche- 09, Centre d'etudes de l'emploi.
  21. Thomas Piketty, 1998. "L'impact des incitations financières au travail sur les comportements individuels : une estimation pour le cas français," Économie et Prévision, Programme National Persée, vol. 132(1), pages 1-35.
  22. 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.
  23. Robert Moffitt, 2002. "Welfare Programs and Labor Supply," NBER Working Papers 9168, National Bureau of Economic Research, Inc.
  24. Bernard Salanié & Guy Laroque, 1999. "Prélèvements et transferts sociaux : une analyse descriptive des incitations financières au travail," Économie et Statistique, Programme National Persée, vol. 328(1), pages 3-19.
  25. Denis Fougère & Laurence Rioux, 2001. "Le RMI treize ans après : entre redistribution et incitations," Économie et Statistique, Programme National Persée, vol. 346(1), pages 3-12.
  26. Abowd, John M. & Kramarz, Francis & Margolis, David N. & Philippon, Thomas, 2000. "The Tail of Two Countries: Minimum Wages and Employment in France and the United States," IZA Discussion Papers 203, Institute for the Study of Labor (IZA).
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