The Economic Effects of Employment-Conditional Income Support Schemes for the Low-Paid: An Illustration from a CGE Model Applied to Four OECD Countries

OECD Economics Department Working Paper No. 224

42 Pages Posted: 12 Jan 2000

See all articles by Andrea Bassanini

Andrea Bassanini

Organization for Economic Co-Operation and Development (OECD); IZA Institute of Labor Economics

Jørn Henrik Rasmussen

Confederation of Danish Industries

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Date Written: September 1999

Abstract

Problems of unemployment and low pay amongst the low skilled and those with little work experience are severe in many OECD countries. Employment-conditional schemes are policy instruments designed to increase the employment prospects of the low skilled as well as to support their living standard. In this paper a simple CGE model is developed to simulate the impact of the introduction of an employment-conditional scheme in four OECD countries. The simulated policy package is graduated on gross earnings with both "phase-in" and "phase-out" regions. The advantage of the CGE approach is to allow assessing the direct and indirect effects of the financing of the policy scheme on both labour demand and supply. The simulations suggest that employment effects on targeted households are significant while the impact on aggregate employment is modest. Furthermore, the cost-effectiveness of the policy package is found to depend crucially on the earnings distribution, the levels of taxes on labour and the existence of a severe unemployment trap.

JEL Classification: C68, H31, J22

Suggested Citation

Bassanini, Andrea and Rasmussen, Jørn Henrik and Scarpetta, Stefano, The Economic Effects of Employment-Conditional Income Support Schemes for the Low-Paid: An Illustration from a CGE Model Applied to Four OECD Countries (September 1999). OECD Economics Department Working Paper No. 224, Available at SSRN: https://ssrn.com/abstract=190968 or http://dx.doi.org/10.2139/ssrn.190968

Andrea Bassanini

Organization for Economic Co-Operation and Development (OECD) ( email )

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IZA Institute of Labor Economics ( email )

P.O. Box 7240
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Germany

Jørn Henrik Rasmussen

Confederation of Danish Industries ( email )

H.C. Andersens Boulevard 18
1787 Copenhagen V
Denmark

Stefano Scarpetta (Contact Author)

OECD, Directorate for Employment, Labour and Social Affairs ( email )

2 rue Andre Pascal
Paris Cedex 16, 75016
France
+33 1 45 24 19 88 (Phone)
+33 1 45 24 18 59 (Fax)

IZA Institute of Labor Economics

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

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