EconStor >
Forschungsinstitut zur Zukunft der Arbeit (IZA), Bonn >
IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA) >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/20381
  
Title:Welfare-to-Work, Wages and Wage Growth PDF Logo
Authors:Walker, Ian
Lydon, Reamonn
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1144
Abstract:This paper attempts to uncover the effects of a welfare-to-work programme that acts as a wage subsidy on wage growth by exploiting an expansion to this welfare programme in the UK. The conventional wisdom is that such programmes trap recipients into low wage, low quality work – this comes from the simple argument that the ?poverty trap?, which a wage subsidy for low income workers induces, reduces the benefits to on-the-job training and so reduces wage growth. In fact, a wage subsidy will also reduce the costs of general training because we would normally expect workers to pay for their own general training in the form of lower gross wages. So a wage subsidy is a way of sharing these costs with the taxpayer. Thus, the net effect on wage progression depends on whether it reduces costs by more or less than it reduces the benefits. The paper uses Labour Force Survey panel data to look at wage levels and growth in the UK before and after Working Families? Tax Credit (WFTC) replaced Family Credit (FC). We exploit nonlinearities in the system and overall, we find that wage growth for those on WFTC exceeded wage growth for those on FC, although for those already on the programme wage growth declined, reflecting the fact that under WFTC the wage growth is implicitly taxed over a wider range of wages.
Subjects:wage growth
welfare-to-work
JEL:I38
J30
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

Files in This Item:
File Description SizeFormat
dp1144.pdf1.28 MBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/20381

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.