Beans for Breakfast? How Exportable is the British Workfare Model?

Abstract

Beans for Breakfast? How Exportable Is the British Workfare Model? * Social assistance and inactivity traps have long been considered amongst the main causes of the poor employment performance of EU countries. The success of New Labour has triggered a growing interest in instruments capable of combining the promotion of responsibility and self-sufficiency with solidarity with less skilled workers. Making-work-pay (MWP) policies, consisting of transfers to households with low earning capacity, have quickly emerged as the most politically acceptable instruments in tax-benefit reforms of many Anglo Saxon countries. This chapter explores the impact of introducing the British Working Families' Tax Credit in three EU countries with rather different labor market and welfare institutions: Finland, France and Germany. Simulating the reform reveals that, while first round effects on income distribution is considerable, the interaction of the new instrument with the structural characteristics of the economy and the population may lead to counterproductive second round effects (i.e. changes in economic behavior). The implementation of the reform, in this case, could only be justified if the social inclusion (i.e. transition into activity) of some specific household types (singles and single mothers) is valued more than a rise in the employment per se. JEL Classification:C25, C52, H31, J22

Active labor market programs - employment gain or fiscal drain?

“…They are particularly effective in achieving both goals, labor market participation and poverty alleviation, for single workers (according to Brewer et al, 2006, the WFTC increased labor supply of single mothers by around 5.1 percentage points). Nonetheless, at the same time, they provide disincentives for married women with working partners 117 , since earnings by second earners might lead to a loss of entitlement. In contrast, on the one hand, low-wage subsidies as an example for individualized measures not only cover a wider number of workers, thereby, generally -assuming the same government expenditures -with a lower transfer, they are also less effective in targeting the poor 118 .…”

“…In contrast, on the one hand, low-wage subsidies as an example for individualized measures not only cover a wider number of workers, thereby, generally -assuming the same government expenditures -with a lower transfer, they are also less effective in targeting the poor 118 . Low-wage workers receiving transfers may not necessarily be at the bottom of the household income distribution 119 . On the other hand, while having smaller effects, low-wage subsidies do not create disincentives to second earners, but rather improve the employment incentives of both married and single women 120 .…”

“…Imposing sanctions or activation requirements through participation in job search assistance, training or measures closer to regular jobs (along the results from Sianesi, 2008) might be a more cost-effective alternative, also in light of the considerable locking-in effect of public works. Bargain and Orsini (2006b) argue that efficient activation instruments could have a greater impact on poverty reduction by bringing workers into employment.…”

Income Support Policies for the Working Poor

“…Far less research has been done on more condensed income distributions. Simulations by Bargain and Orsini (2007) for Germany, France and Finland, by Figari (2010) for four southern European countries (Italy, Spain, Portugal and Greece) and by Marx et al (2012) for Belgium illustrate that it might not be so evident to apply EITC type systems in other settings.…”

Income support policies for the working poor

“…Far less research has been done on more condensed income distributions. Simulations by Bargain and Orsini (2007) for Germany, France and Finland, by Figari (2010) for four southern European countries (Italy, Spain, Portugal and Greece) and by Marx et al (2012) for Belgium illustrate that it might not be so evident to apply EITC type systems in other settings.…”