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

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.

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Paper provided by IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2002:1.

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Length: 27 pages
Date of creation: 15 Jan 2002
Date of revision:
Publication status: Published in Swedish Economic Policy Review, 2001, pages 239-266.
Handle: RePEc:hhs:ifauwp:2002_001
Contact details of provider: Postal: IFAU, P O Box 513, SE-751 20 Uppsala, Sweden
Phone: (+46) 18 - 471 70 70
Fax: (+46) 18 - 471 70 71
Web page: http://www.ifau.se/
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  1. 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.
  2. M. Keane & R. Mofitt, 1995. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," Working Papers 95-4, Brown University, Department of Economics.
  3. Jeff Grogger & Charles Michalopoulos, 1999. "Welfare Dynamics Under Time Limits," NBER Working Papers 7353, National Bureau of Economic Research, Inc.
  4. 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.
  5. Hilary Hoynes & Richard Blundell, 2001. "Has "In-Work" Benefit Reform Helped the Labour Market?," NBER Working Papers 8546, National Bureau of Economic Research, Inc.
  6. Jeff Grogger, 2000. "Time Limits and Welfare Use," NBER Working Papers 7709, National Bureau of Economic Research, Inc.
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