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Do employment-conditional earnings subsidies work?

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  • Lane Kenworthy

Abstract

Cash transfers and tax credits to people in paid work but with low earnings are increasingly prominent in affluent countries. How effective are these programs at reducing poverty and increasing employment? The US and UK experience suggests that, in an economy with weak unions and limited labor market regulations, an employment-conditional earnings subsidy increases employment among persons at the low end of the labor market but reduces low-end wage levels somewhat. Overall, it appears to boost the absolute incomes of low-end households. Even so, cross-country comparison offers little support for a conclusion that the institutional configuration in these countries, including the employment-conditional earnings subsidy, is especially effective at generating high and rising employment, high and rising incomes among low-end households, or low and decreasing relative poverty rates. Quite a few other affluent nations have done as well as or better than the UK and the US in recent decades. In rich countries with stronger collective bargaining, employment-conditional earnings subsidies tend to be small, sector-specific, or temporary and so are unlikely to have sizeable effects on aggregate employment or incomes. Germany and Sweden have implemented larger versions. Germany's appears to have increased employment but reduced wage levels and low-end households incomes. Sweden's is too new to permit assessment of its impact.

Suggested Citation

  • Lane Kenworthy, 2015. "Do employment-conditional earnings subsidies work?," ImPRovE Working Papers 15/10, Herman Deleeck Centre for Social Policy, University of Antwerp.
  • Handle: RePEc:hdl:improv:1510
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    File URL: http://www.centrumvoorsociaalbeleid.be/ImPRovE/Working%20Papers/ImPRovE%20WP%201510_1.pdf
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    References listed on IDEAS

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    1. Ozusowanie – obowiązkowy zestaw dla każdego
      by k.mokrzycka in Obserwator Finansowy on 2015-07-21 13:37:58

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    Cited by:

    1. Dieter Vandelannoote & Gerlinde Verbist, 2017. "The Impact of In-Work Benefits on Employment and Poverty," Working Papers 1702, Herman Deleeck Centre for Social Policy, University of Antwerp.
    2. Sarah Marchal & Ive Marx, 2015. "Stemming the tide. What have EU countries done to support low-wage workers in an era of downward wage pressure?," ImPRovE Working Papers 15/18, Herman Deleeck Centre for Social Policy, University of Antwerp.
    3. Dieter Vandelannoote & Gerlinde Verbist, 2016. "The design of in-work benefits: how to boost employment and combat poverty in Belgium," ImPRovE Working Papers 16/15, Herman Deleeck Centre for Social Policy, University of Antwerp.
    4. Zachary Parolin, 2016. "The Sum of Its Parts? Assessing Variation and Trends in Family Income Support Across the 48 Contiguous United States," Working Papers 1605, Herman Deleeck Centre for Social Policy, University of Antwerp.
    5. Kenworthy, Lane & Marx, Ive, 2017. "In-Work Poverty in the United States," IZA Discussion Papers 10638, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    employment-conditional earnings subsidy; in-work benefit; earned income tax credit; social policy; employment; poverty;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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