Active Labour Market Policy vs Employment Tax Credits: Lessons from Recent UK Reforms

Institute for Labour Market Policy Evaluation Working Paper No. 2002:1

28 Pages Posted: 30 Jul 2002

See all articles by Richard W. Blundell

Richard W. Blundell

UCL; IFS; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Costas Meghir

Yale University; Yale University - Cowles Foundation; Institute for Fiscal Studies (IFS); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: January 2002

Abstract

Many welfare-to-work programs in both North America and Europe are directed at making work pay for the low skilled. This paper identifies two alternative policies that are motivated by this same objective - active labour market programs that involve wage subsidies together with improved job matching; and earned income tax credits that supplement wages for working low-income families. Although sharing similar concerns over labour market incentives for low skilled workers, these alternative policies typically differ in many important ways. We present an evaluation of the impacts of two such recent programs designed to enhance the labour market attachment of low-wage workers in the UK. These programs have many features in common and are similar to many policy proposals in Europe and North America. The evaluation of the UK reforms brings empirical evidence into the debate on the effectiveness of these programs and is used to assess what aspects of their design work well and what aspects could be improved.

Keywords: Welfare reform, tax credits, wage subsidues, labour supply

JEL Classification: C25, H31, H53, J21, J22

Suggested Citation

Blundell, Richard W. and Meghir, Costas, Active Labour Market Policy vs Employment Tax Credits: Lessons from Recent UK Reforms (January 2002). Institute for Labour Market Policy Evaluation Working Paper No. 2002:1. Available at SSRN: https://ssrn.com/abstract=318799 or http://dx.doi.org/10.2139/ssrn.318799

Richard W. Blundell (Contact Author)

UCL ( email )

Department of Economics
Gower Street
London, WC1E 6BT
United Kingdom
+44 20 7504 5863 (Phone)
+44 20 7916 2773 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctp39a/

IFS

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

HOME PAGE: http://www.ifs.org.uk

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Costas Meghir

Yale University ( email )

37 Hillhouse avenue
New Haven, CT CT 06511
United States
+12034323558 (Phone)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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