Abstract

http://ssrn.com/abstract=943473
 


 



Workfare: An Effective Alternative to the Combination Wages


Holger Bonin


Institute for the Study of Labor (IZA); Centre for European Economic Research (ZEW)

Hilmar Schneider


Institute for the Study of Labor (IZA); DIW Berlin, German Institute for Economic Research

October 2006

IZA Discussion Paper No. 2399

Abstract:     
In the debate on in-work benefits in Germany it is often overlooked that such subsidies may only be effective if basic minimum income is remarkably decreased for those who are employable. However, proposals following this principle will hardly achieve political consensus as can be derived from reactions to the model of ifo or the board of economic advisors. IZA is therefore proposing workfare as an effective alternative, which may accomplish a strong incentive for the acceptance of low paid jobs without having to cut the current welfare level. Simulations based on a micro-econometric labor supply model show that this could add to the workforce an additional number of 800,000 workers. Roughly the same effect could be achieved by the ifo model, however, at the expense of massive cuts of disposable income for welfare recipients. Hence, workfare turns out as an efficient alternative. Moreover, there is no useful combination between in-work benefits based on the current welfare level and workfare.

Number of Pages in PDF File: 18

Keywords: in-work benefits, low-wage subsidies, labor supply, discrete choice, Germany

JEL Classification: J68, J38, H24, J22

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Date posted: November 9, 2006  

Suggested Citation

Bonin, Holger and Schneider, Hilmar, Workfare: An Effective Alternative to the Combination Wages (October 2006). IZA Discussion Paper No. 2399. Available at SSRN: http://ssrn.com/abstract=943473

Contact Information

Holger Bonin (Contact Author)
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 303 (Phone)
+49 228 3894 510 (Fax)
Centre for European Economic Research (ZEW)
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
Hilmar Schneider
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
DIW Berlin, German Institute for Economic Research
Mohrenstraße 58
Berlin, 10117
Germany
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