The impact of social policy initiatives on labour supply incentives: a review of the literature

Policy Research Paper 18 / Guyonne Kalb. February 2003

By reviewing current Australian and international literature, this research has improved our understanding of the effects of various work incentives on labour supply for different sub-groups. Key findings include:

the benefit level is found to have a small negative impact (for both men and women) on exit rates and labour supply
in-work benefits schemes in the United States and United Kingdom have demonstrated positive results for sole parents, but are small or ambiguous for partnered men and women
women, particularly sole mothers, are most sensitive to financial incentives
education improves employment prospects and appears to increase job tenure, with women benefiting more than men from a higher level of education
the effects of training are more ambiguous, with on-the-job-training proving effective for young men with low levels of education, but workfare programs appear to reduce the probability of finding work for educated people
early results from Australian studies indicate workfare and work experience programs (particularly wage subsidies and brokered employment programs) are effective in reducing the duration of unemployment, and increasing the duration of employment.

The paper also provides an overview and comparison of methodologies commonly employed in labour market research. It demonstrates the danger of evaluating programs using short-term longitudinal data. It concludes by identifying a need for more reliable and up-to-date data, particularly longitudinal data, to better understand the long-term effects of work incentive programs.

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The impact of social policy initiatives on labour supply incentives: a review of the literature