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Making Work Pay: Increasing Labour Supply of Secondary Earners in Low Income Families with Children

Author

Listed:
  • Kurowska, Anna

    () (Warsaw University)

  • Myck, Michal

    () (Centre for Economic Analysis, CenEA)

  • Wrohlich, Katharina

    () (DIW Berlin)

Abstract

In-work support through the tax-benefit system has proved to be an effective way of increasing labour supply of lone mothers and first earners in couples in a number of OECD countries. At the same time these instruments usually create negative employment incentives for secondary earners. This in turn reduces the potential of in-work support to address the joint objectives of higher employment and lower poverty levels. In this paper we present a simulation exercise to examine labour supply implications of a diverse set of possible reforms to the main elements of tax and benefit support of families with children. We set the analysis in the context of the Polish tax and benefit system and show how an adequate combination of increased generosity of support with the introduction of a "double earner" premium may result in increased labour supply of first and second earners in couples. The simulated reactions are concentrated in the lower half of the income distribution thus increasing the potential of in-work support to alleviate poverty.

Suggested Citation

  • Kurowska, Anna & Myck, Michal & Wrohlich, Katharina, 2015. "Making Work Pay: Increasing Labour Supply of Secondary Earners in Low Income Families with Children," IZA Discussion Papers 9531, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9531
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    References listed on IDEAS

    as
    1. Michal Myck & Adrian Domitrz & Leszek Morawski & Aneta Semeniuk, 2015. "Financial incentives to work in the context of a complex reform package and growing wages: the Polish experience 2005–2011," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 15(2), pages 99-121.
    2. Bargain, Olivier & Orsini, Kristian, 2006. "In-work policies in Europe: Killing two birds with one stone?," Labour Economics, Elsevier, vol. 13(6), pages 667-697, December.
    3. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
    4. Olivier Bargain & Marco Caliendo & Peter Haan & Kristian Orsini, 2010. "“Making work pay” in a rationed labor market," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(1), pages 323-351, January.
    5. Morawski, Leszek & Myck, Michal, 2010. "'Klin'-ing up: Effects of Polish tax reforms on those in and on those out," Labour Economics, Elsevier, vol. 17(3), pages 556-566, June.
    6. Peter Haan & Michał Myck, 2012. "Multi-family households in a labour supply model: a calibration method with application to Poland," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2907-2919, August.
    7. Peter Haan & Michal Myck, 2007. "Apply with Caution: Introducing UK-Style In-Work Support in Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 43-72, March.
    8. Blundell, Richard, 2000. "Work Incentives and 'In-Work' Benefit Reforms: A Review," Oxford Review of Economic Policy, Oxford University Press, vol. 16(1), pages 27-44, Spring.
    9. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
    10. De Luca, Giuseppe & Rossetti, Claudio & Vuri, Daniela, 2012. "In-Work Benefits for Married Couples: An Ex-Ante Evaluation of EITC and WTC Policies in Italy," IZA Discussion Papers 6739, Institute for the Study of Labor (IZA).
    11. Viktor Steiner & Katharina Wrohlich, 2005. "Work Incentives and Labor Supply Effects of the ‘Mini-Jobs Reform’ in Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(1), pages 91-116, March.
    12. Patricia Apps & Ray Rees, 2010. "Australian Family Tax Reform and the Targeting Fallacy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(2), pages 153-175.
    13. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
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    Cited by:

    1. Agustin Redonda, 2016. "Tax Expenditures and Sustainability. An Overview," Discussion Notes 1603, Council on Economic Policies.

    More about this item

    Keywords

    family policy; tax-benefit reforms; labour supply;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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