In-work benefits for low wage jobs

Abstract

"By financially supplementing low wages, in-work benefits are an instrument of active labor market policy to encourage labor market integration of low skilled and long-term unemployed persons. The hypothesis of this paper is that the financial benefit from the state, even though increasing the overall wage, is interpreted by the employee as a signal that employers are not willing to behave according to the norm of reciprocity and lowers wage satisfaction. This leads to negative side effects on employment stability foiling positive effects on labor market integration. This hypothesis is tested using a survey of in-work benefit recipients and of nonrecipients as a comparison group. The method of propensity score matching is applied to eliminate all compositional differences between benefit recipients and nonrecipients except for the source of their income. It is shown that in-work benefits reduce wage satisfaction (as an indicator of perceived violations of reciprocity) by 14 percentage points. However, whether this explains why in-work benefits are not successful in promoting employment stability remains an open question." (Author's abstract, IAB-Doku) ((en))

Cite article

Krug, G. (2007): In-work benefits for low wage jobs. Can additional income hinder labor market integration? (IAB-Discussion Paper 28/2007), Nürnberg, 46 p.