Making Work Pay: Increasing Labour Supply of Secondary Earners in Low Income Families with Children

14 Pages Posted: 29 Nov 2015

See all articles by Anna Kurowska

Anna Kurowska

University of Warsaw

Michal Myck

German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research

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Abstract

In-work support through the tax-benefit system has proved to be an effective way of increasing labour supply of lone mothers and first earners in couples in a number of OECD countries. At the same time these instruments usually create negative employment incentives for secondary earners. This in turn reduces the potential of in-work support to address the joint objectives of higher employment and lower poverty levels.In this paper we present a simulation exercise to examine labour supply implications of a diverse set of possible reforms to the main elements of tax and benefit support of families with children. We set the analysis in the context of the Polish tax and benefit system and show how an adequate combination of increased generosity of support with the introduction of a "double earner" premium may result in increased labour supply of first and second earners in couples. The simulated reactions are concentrated in the lower half of the income distribution thus increasing the potential of in-work support to alleviate poverty.

Keywords: labour supply, tax-benefit reforms, family policy

JEL Classification: J22, J13, J18

Suggested Citation

Kurowska, Anna and Myck, Michal and Wrohlich, Katharina, Making Work Pay: Increasing Labour Supply of Secondary Earners in Low Income Families with Children. IZA Discussion Paper No. 9531. Available at SSRN: https://ssrn.com/abstract=2696369

Anna Kurowska (Contact Author)

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

Michal Myck

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Katharina Wrohlich

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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