Labour supply and in-work and in-kind transfers

Bingley, Bingley and Ian Walker ()
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Bingley, Bingley: Institute for Fiscal Studies

No W97/02, IFS Working Papers from Institute for Fiscal Studies

Abstract: This research (supported by the Leverhulme Trust) investigates the relationship between working behaviour (whether one is unemployed, not participating, working part-time or full-time), cash transfer programmes (such as in-work transfers like Family Credit, and out-of-work transfers like Income Support), and in-kind transfer programmes. The latter are usually where goods or services are supplied directly (and examples would be free school meals, welfare milk, etc.) but anything that is subsidised so that its price at the margin is zero can also be thought of as an in-kind transfer - so housing benefit could be thought of in this way. The motivation for the work is that in-kind and cash in-work transfers have both been suggested as a way of relieving poverty without having adverse consequences for work incentives. Thus we analyse the effects of these different forms of transfers on working behaviour. One problem with transfer programmes is that they may suffer from take-up (or participation) rates that are less than 100% - that is, some households that are entitled to a transfer may not receive it. This may be due to some kind of cost (stigma, for example) or to ignorance (which can be thought of as a cost associated with acquiring information). Adopting a methodology that allows for less than 100% participation in transfer programmes is one advance of this paper. A second important factor is that, if we are to consider the effect of transfer programmes on labour market choices, we need to allow for the choices that are available: some individuals may want to work but not be able to find work and we allow for this involuntary labour market non-participation in our work. The analysis is based on a sample of 4527 lone mother heads of households constructed from pooling Family Expenditure Surveys from 1978 to 1992. We concentrate on lone mothers since we want to abstract from the interdependencies between the decisions of adults in households: of course, they are also an important group in their own right. Family Credit is a in-work cash transfer programme that aim to encourage lone mothers to work but has been bedevilled by low participation: we find that the (stigma) costs associated with Family Credit are quite high - perhaps as high as half the typical entitlement. In contrast, in-kind transfers seem to have low levels of stigma - perhaps only 20% of typical entitlements (although this might be because the stigma is often borne by the children). Thus, in-kind transfers may have an important role in promoting work incentives.

Date: 1997-08-16
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