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Making Work Pay: Increasing Labour Supply of Secondary Earners in Low Income Families with Children Anna Kurowska, Michal Myck, Katharina Wrohlich In: Contemporary Economics 11 (2017), 2, S. 161-170

Abstract:

In-work support through the tax-benefit system has proved to be an effective way of increasing thelabor supply of lone mothers and first earners in couples in a number of OECD countries. At the sametime, these instruments usually create negative employment incentives for secondary earners. This inturn reduces the potential of in-work support to address the joint objectives of higher employmentand lower poverty levels. In this paper, we present a simulation exercise to examine labor supplyimplications of a diverse set of possible reforms to the main elements of tax and benefit support forfamilies with children. We set the analysis in the context of the Polish tax and benefit system and showhow an adequate combination of increased generosity of support with the introduction of a “doubleearner” premium may result in an increased labor supply of first and second earners in couples. Thesimulated reactions are concentrated in the lower half of the income distribution, thus increasing thepotential of in-work support to alleviate poverty.

Keywords:

labor supply, tax-benefit system, microsimulation, family policy