Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284229 
Year of Publication: 
2023
Series/Report no.: 
IFS Working Papers No. 23/03
Publisher: 
Institute for Fiscal Studies (IFS), London
Abstract: 
Policy-makers have increasingly turned to 'in-work transfers' to boost incomes among poorer workers and strengthen work incentives. One attraction of these is that labour supply elasticities are typically greatest at the extensive margin. Because in-work transfers are normally subject to earnings-related phase-outs, they tend to most strongly incentivise part-time work, weakening intensive margin incentives for many. But part-time work may generate relatively little in the way of human capital and career progression. How should these dynamic considerations affect the design of in-work transfers? To assess this we use a dynamic model of female labour supply with endogenous human capital accumulation. Among reforms that would cost the same amount on a no-behavioural-response basis, those that incentivise full-time work can end up costing considerably less than those that incentivise part-time work, once the dynamic responses - including human capital accumulation - are accounted for. They also do more to increase incomes, including among poorer households, and to raise welfare. Our results suggest that in-work transfers could be refined by paying greater attention to the intensive margin effects through the design of their phase-outs.
Subjects: 
Life-cycle model
human capital
transfers
labour supply
intensive margin
extensive margin
welfare
JEL: 
H2
H31
J22
J24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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