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Active labour market policy vs employment tax credits: lessons from recent UK reforms

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Abstract

Many welfare-to-work programs in both North America and Europe are directed at making work pay for the low skilled. This paper identifies two alternative policies that are motivated by this same objective – active labour market programs that involve wage subsidies together with improved job matching; and earned income tax credits that supplement wages for working low-income families. Although sharing similar concerns over labour market incentives for low skilled workers, these alternative policies typically differ in many important ways. We present an evaluation of the impacts of two such recent programs designed to enhance the labour market attachment of low-wage workers in the UK. These programs have many features in common and are similar to many policy proposals in Europe and North America. The evaluation of the UK reforms brings empirical evidence into the debate on the effectiveness of these programs and is used to assess what aspects of their design work well and what aspects could be improved.

Suggested Citation

  • Blundell, Richard & Meghir, Costas, 2002. "Active labour market policy vs employment tax credits: lessons from recent UK reforms," Working Paper Series 2002:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  • Handle: RePEc:hhs:ifauwp:2002_001
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    1. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
    2. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
    3. Jeffrey Grogger, 2004. "Time Limits and Welfare Use," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
    4. Jeffrey Grogger & Charles Michalopoulos, 2003. "Welfare Dynamics under Time Limits," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 530-554, June.
    5. Richard Blundell & Hilary W. Hoynes, 2004. "Has 'In-Work' Benefit Reform Helped the Labor Market?," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 411-460 National Bureau of Economic Research, Inc.
    6. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
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    Citations

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    Cited by:

    1. Bart Cockx & Henri Sneessens & Bruno Van der linden, 2004. "Allégements de charges sociales : une mesure à promouvoir mais à réformer," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(1), pages 55-68.
    2. Nicola Pavoni & G. L. Violante, 2007. "Optimal Welfare-to-Work Programs," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 283-318.
    3. Richard Blundell & Hilary W. Hoynes, 2004. "Has 'In-Work' Benefit Reform Helped the Labor Market?," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 411-460 National Bureau of Economic Research, Inc.
    4. Sarah Hamersma, 2008. "The effects of an employer subsidy on employment outcomes: A study of the work opportunity and welfare-to-work tax credits," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(3), pages 498-520.
    5. Ana Paula Ribeiro & Margarida Ruivo, 2007. "A case for including fiscal policies in the Eurostat Labour Market Policy database," CEF.UP Working Papers 0705, Universidade do Porto, Faculdade de Economia do Porto.
    6. Ayala, Luis & Rodriguez, Magdalena, 2006. "The latin model of welfare: Do `insertion contracts' reduce long-term dependence?," Labour Economics, Elsevier, vol. 13(6), pages 799-822, December.

    More about this item

    Keywords

    welfare reform; tax credits; wage subsidies; labour supply;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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