Working Paper: NBER ID: w8546
Authors: Richard Blundell; Hilary Hoynes
Abstract: The aim of this paper is to examine the labour market impact of in-work benefit reform in the UK. Evidence is drawn from the impact of earlier reforms in the UK and similar reforms in the US. We focus on the impact on labour supply -- employment and hours of work. In the US a large proportion of the dramatic increase in participation among low educated single parents in the 1990s has been attributed to the increased generosity of the EITC. The impact of apparently similar reforms in the UK appears to have been smaller. We argue that these differences can be attributed to four factors: the impact of interactions with other means tested benefits in the UK; the importance of workless couples with children in the UK, who make up nearly 50% of the recipients in the UK; the level of income support given to non-working parents; and the strength of the economic upturn in the US during the 1990s.
Keywords: inwork benefits; labour market; employment; welfare reform; UK; US
JEL Codes: H2; I3; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inwork benefit reforms (J68) | Labor market outcomes (J48) |
| Increased generosity of the Earned Income Tax Credit (EITC) (H31) | Rise in labor market participation among low-educated single parents (J49) |
| Working Families Tax Credit (WFTC) (I38) | Smaller impact on labor market outcomes (F66) |
| Interaction of inwork benefits with other means-tested benefits in the UK (I38) | Dampens labor supply incentives (H31) |
| Prevalence of workless couples with children in the UK (J12) | Smaller impact on labor market outcomes (F66) |
| Level of income support for nonworking parents (I38) | Increased impact of inwork benefits (H31) |
| Strength of the economic upturn in the US during the 1990s (O51) | Greater impact of inwork benefits on labor market outcomes (J68) |