A Good Time for Making Work Pay? Taking Stock of In-Work Benefits and Related Measures across the OECD

Herwig Immervoll and Mark Pearson

No 3, IZA Policy Papers from Institute of Labor Economics (IZA)

Abstract: The twin problem of in-work poverty and persistent labour market difficulties of low-skilled individuals has been one of the most important drivers of tax-benefit policy reforms in OECD countries in recent years. Employment-conditional cash transfers to individuals facing particular labour-market challenges have been a core element of “make-work-pay” policies for some time and are now in use in more than half of the OECD countries. They are attractive because they redistribute to low-income groups while also creating additional work incentives. But like all social benefits, they have to be financed, which creates additional economic costs for some. This paper discusses the rationale for in-work benefits (IWB), summarises the main design features of programmes operated in OECD countries, and provides an update of what is known about their effectiveness in terms of reducing inequalities and creating employment. As policies aiming to promote self-sufficiency, wage subsidies and minimum wages share a number of the objectives associated with IWB measures. We review evidence on the effectiveness of minimum wages and wage subsidies and discuss links between these policies and IWBs. Finally, we outline some potential consequences of weakening labour markets for the effectiveness of make-work-pay policies.

Keywords: labor market; tax-benefit reform; in-work benefits; low-skilled workers (search for similar items in EconPapers)
JEL-codes: H24 H31 J20 J30 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2009-04
New Economics Papers: this item is included in nep-eur and nep-lab
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Citations: View citations in EconPapers (74)

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Working Paper: A Good Time for Making Work Pay? Taking Stock of In-Work Benefits and Related Measures across the OECD (2009)
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