Revisiting the ‘Make Work Pay’ debate: How pervasive are dependency and poverty traps really?

In recent decades, the principle of ‘make work pay’ has dominated the current policy discourse. Yet, much of the evidence supporting claims that work does not pay and that dependency traps afflict large sections of the population typically builds on model family type data, which are inevitable selective and thus not necessarily representative of realworld financial pay-offs. This paper examines how pervasive and important such dependency and poverty traps really are. Using rich administrative data for Belgium, we simulate participation tax rates (PTR) for those not in work and part-time to full-time tax rates (PTFTR) for those in part-time work. Contrary to common claims, our findings show that only 6% of the non-working and 2% of the part-time working population face strong financial disincentives to take up full-time work. We further evaluate the role of commonly used ‘make work pay’ instruments, confirming just how delicate a balancing act it is to design a system that performs optimally in terms of work incentives at both margins and poverty reduction. Finally, we draw the profiles of those facing weak and strong incentives. We find that nearly half of those with weak incentives to work appear to be single mothers, highlighting the need for targeted policy attention. We, however, also find similar profiles on both ends of the spectrum from low to high work incentives. This suggests that for some there may be another reason for not working full-time that goes beyond the realm of financial incentives and that many individuals also face structural barriers to employment, regardless of their willingness to work. This calls for a more nuanced policy discourse, one that not only expects people to work but also enables them to do so.