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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

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  • Andrea Bassanini
  • Jørn Henrik Rasmussen
  • Stefano Scarpetta

Abstract

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 ...

Suggested Citation

  • Andrea Bassanini & Jørn Henrik Rasmussen & Stefano Scarpetta, 1999. "The Economic Effects of Employment-Conditional Income Support Schemes for the Low-Paid: An Illustration from a CGE Model Applied to Four OECD Countries," OECD Economics Department Working Papers 224, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:224-en
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    File URL: http://dx.doi.org/10.1787/083815484206
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    Cited by:

    1. Olivier Bargain & Karina Doorley, 2009. "In-work transfers in good times and bad - simulations for Ireland," Working Papers 200930, School of Economics, University College Dublin.
    2. Bruno, VAN DER LINDEN, 2003. "Unemployment insurance and training in an equilibrium matching model with heterogeneous agents," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    3. Margherita Scarlato, 2002. "A Cge Model for Labour Policy Assessment," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 3, November.
    4. Stefan Boeters & Luc Savard, 2011. "The Labour Market in CGE Models," Cahiers de recherche 11-20, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    5. repec:iab:iabmit:v:33:i:1:p:54-67 is not listed on IDEAS
    6. Gradzewicz, Michal & Jędrzejowicz, Tomasz & Żółkiewski, Zbigniew, 2007. "The cost of fiscal tightening in Poland on the road to the Euro: does the labour market matter? (CGE model simulations)," MPRA Paper 28146, University Library of Munich, Germany.
    7. 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.
    8. Hélène Périvier, 2003. "Les mesures d’incitation au travail des personnes peu qualifiées," Sciences Po publications info:hdl:2441/3861, Sciences Po.
    9. Randall S. Jones & Satoshi Urasawa, 2012. "Promoting Social Cohesion in Korea," OECD Economics Department Working Papers 963, OECD Publishing.
    10. Buslei, Hermann & Steiner, Viktor, 2000. "Beschäftigungseffekte und fiskalische Kosten von Lohnsubventionen im Niedriglohnbereich (Employment effects and fiscal costs of wage subsidies in the low-wage sector)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 33(1), pages 54-67.
    11. Maria Laura Alzua & Hernan Ruffo, 2011. "Effects of Argentina's Social Security Reform on Labor Markets and Poverty," Working Papers MPIA 2011-11, PEP-MPIA.
    12. Stéphanie Jamet & Thomas Chalaux & Vincent Koen, 2013. "Labour Market and Social Policies to Foster More Inclusive Growth in Sweden," OECD Economics Department Working Papers 1023, OECD Publishing.
    13. Berthold, Norbert & Thode, Eric, 2000. "Umverteilung in der Mittelschicht: notwendiges Übel im Kampf gegen Armut?," Discussion Paper Series 34, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    14. Hélène Périvier, 2003. "Les mesures fiscales d'incitation au travail des personnes non qualifiées," Revue de l'OFCE, Presses de Sciences-Po, vol. 87(4), pages 281-336.
    15. Pierre Cahuc, 2002. "A quoi sert la prime pour l'emploi ?," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 3-61.
    16. Oskamp, Frank & Snower, Dennis J., 2006. "The effect of low-wage subsidies on skills and employment," Kiel Working Papers 1292, Kiel Institute for the World Economy (IfW).
    17. G. Carone & A. Salomäki, 2001. "Reforms in tax-benefit systems in order to increase emplyoment incentives in the EU," European Economy - Economic Papers 2008 - 2015 160, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    18. Boeters, Stefan & Savard, Luc, 2013. "The Labor Market in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, Elsevier.

    More about this item

    Keywords

    bas salaires; CGE model; chômage; in-work benefits; low pay; modèle EGC; prestations liées à l'exercice d'un emploi; réforme fiscale; tax reform; unemployment;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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