Comparing in‐work benefits and the reward to work for families with children in the US and the UK

Abstract

The income transfer systems for low‐income families in the US and the UK try both to reduce poverty and to encourage work. In‐work benefits are a key part of both countries' strategies through the earned income tax credit and the working families' tax credit (and predecessors) respectively. But tax credits are only one part of the whole tax and welfare system. In‐work benefits, taxes and welfare benefits combine in both countries to provide good financial incentives for lone parents to do minimum‐wage work, but poorer incentives to increase earnings further. But direct comparisons of budget constraints hide important points of detail. First, not enough is known about what determines take‐up of in‐work benefits. Second, the considerable differences in assessment and payment mechanisms and frequency between EITC and WFTC mean that low‐income families in the US and the UK may respond very differently to apparently similar financial incentives.

Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain

“…There is, of course, no reason to expect similar behavioural responses to different in-work benefits from two different groups in different labour markets; one very important difference between WFTC and EITC is that per-family expenditure on WFTC is around four times as high as it is for EITC: see Fig. 10 of Brewer (2001).…”

Job Changes and Hours Changes: Understanding the Path of Labor Supply Adjustment

“…An interesting feature of the U.K. reforms has been the changing incentive structure toward part-time and full-time work engendered by these reforms. Not only has employment responded to these reforms but so has the distribution of weekly hours of work (Blundell et al 2000;Brewer 2001). However, the mechanism for these adjustments in labor supply has not been studied.…”

Causes and Consequences of the Divergent Working-Time Patterns of Employed Mothers in the UK and the US: Developing a Comparative Analysis

“…Thus, this UK tax credit system implies that care of dependent children is not compatible with full-time work. Instead the norm for mothers of dependent children in the UK is to work part-time and take the primary role as an active parent [3,6,9].…”

“…As such, lone mothers particularly are given an incentive to look for employment over 16 hours, since the priority of the C&WTC is getting one person from each workless household into employment, rather than facilitating women's employment participation more generally [9,65].…”