Beans for Breakfast? How Exportable is the British Workfare Model?

32 Pages Posted: 21 Mar 2006

See all articles by Kristian Orsini

Kristian Orsini

KU Leuven

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Date Written: March 2006

Abstract

Social assistance and inactivity traps have long been considered amongst the main causes of the poor employment performance of EU countries. The success of New Labour has triggered a growing interest in instruments capable of combining the promotion of responsibility and self-sufficiency with solidarity with less skilled workers. Making-work-pay (MWP) policies, consisting of transfers to households with low earning capacity, have quickly emerged as the most politically acceptable instruments in tax-benefit reforms of many Anglo Saxon countries. This chapter explores the impact of introducing the British Working Families' Tax Credit in three EU countries with rather different labor market and welfare institutions: Finland, France and Germany. Simulating the reform reveals that, while first round effects on income distribution is considerable, the interaction of the new instrument with the structural characteristics of the economy and the population may lead to counterproductive second round effects (i.e. changes in economic behavior). The implementation of the reform, in this case, could only be justified if the social inclusion (i.e. transition into activity) of some specific household types (singles and single mothers) is valued more than a rise in the employment per se.

Keywords: tax-benefit systems, in-work benefits, microsimulation, household labor supply

JEL Classification: C25, C52, H31, J22

Suggested Citation

Orsini, Kristian and Bargain, Olivier, Beans for Breakfast? How Exportable is the British Workfare Model? (March 2006). IZA Discussion Paper No. 2025, Available at SSRN: https://ssrn.com/abstract=892359

Kristian Orsini (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Olivier Bargain

IZA Institute of Labor Economics ( email )

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

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

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