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The Economic Effects of Employment-Conditional Income Support Schemes for the Low-Paid: An Illustration from a CGE Model Applied to Four OECD Countries

Listed author(s):
  • Andrea Bassanini
  • Jørn Henrik Rasmussen
  • Stefano Scarpetta

Problems of unemployment and low pay amongst the low-skilled and those with little work experience are severe in many OECD countries. Employment-conditional schemes are policy instruments designed to increase the employment prospects of the low-skilled as well as to support their living standard. In this paper a simple CGE model is developed to simulate the impact of the introduction of an employmentconditional scheme in four OECD countries. The simulated policy package is graduated on gross earnings with both “phase-in” and “phase-out” regions. The advantage of the CGE approach is to allow assessing the direct and indirect effects of the financing of the policy scheme on both labour demand and supply. The simulations suggest that employment effects on targeted households are significant while the impact on aggregate employment is modest. Furthermore, the cost-effectiveness of the policy package is found to depend crucially on the earnings distribution, the levels of taxes on ... Les problèmes de chômage et de faible rémunération des salariés les moins qualifiés et de ceux qui possèdent une expérience de travail limitée sont importants dans de nombreux pays de l'OCDE. Les programmes d'aide conditionnés à l'exercice d'un emploi sont des instruments de politique économique destinés à améliorer les perspectives d'emploi des moins qualifiés, et à soutenir leur niveau de vie. Dans cet article, un modèle d'équilibre général calculable (EGC) est développé afin de simuler l'impact de l'introduction d'un programme d'aide conditionné à l'exercice d'un emploi dans quatre pays de l'OCDE. Les mesures de politique économique simulées sont graduées sur les revenus bruts, avec à la fois des zones "d'entrée" (phase-in) et de "sortie" (phase-out) des programmes. L'avantage de l'approche en termes d'EGC est de permettre d'évaluer les effets directs et indirects du financement du programme sur la demande et l'offre de travail. Les simulations suggèrent que les effets sur ...

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 224.

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Date of creation: 07 Oct 1999
Handle: RePEc:oec:ecoaaa:224-en
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