Ethos Perspectives
Making Work Pay
Reference 2: "The Next Welfare
State" by Hans-Werner Sinn
While well-intentioned, Sinn argues that the welfare state
is generally to be blamed for the widespread unemployment
which plagues much of Continental Europe. The opening up of
Russia and China, as well as the entry of the Asian tigers
into the global economy, has placed downward wage pressures
in Western Europe, especially for lower skilled workers. Employment
levels would remain, if these workers would accept lower wages,
but welfare policies that provide income replacement benefits
for doing nothing create a "reservation wage"
that has to be breached before workers choose work over welfare.
The result is mass unemployment and high dependency.
Sinn holds that such a situation is fiscally
untenable. If Europe wishes to retain its social ideals, it
would need a new system of welfare, which substitutes income
replacement with wage supplementation. People would have to
work at whatever rates markets pay, and the state would supplement
what is needed to support an acceptable living standard. A
wage supplementation programme will be costly, Sinn acknowledges,
but so is the existing welfare state. Moreover, with higher
employment levels, there is greater hope of success and the
prospect of increasing GDP; in principle, it affords individuals
with the self-respect that can only be obtained from an honest
working life.
Sinn, Hans-Werner. "Ifo Viewpoint
No. 72: The Next Welfare State." Munich: Ifo Institute
for Economic Research, 2006. http://www.cesifo-group.de
(accessed March 1, 2007).
Reference 3: "The Earned Income
Tax Credit at Age 30: What We Know" .by Steve Holtt
In this report, Holtt reviews the Earned Income Tax Credit
(EITC), the US’ income supplement programme. The data
shows that EITC is associated with an expansion in employment
among single mothers, who were the target group of the tax
credit. While some mothers (or fathers) stayed at home now
that the incomes of their spouses have increased, this reduction
was more than offset by the surge of single mothers into the
workforce.
Holtt finds little evidence of reduced work
effort at income levels where supplements begin to taper off.
It is not apparent workers can do much to dictate the number
of hours they work. In addition, he finds no compelling proof
that EITC depressed wages substantially. He suggests that
this is so because low-wage workers form only a small segment
within each employment sector.
Overall, Holtt concludes is that the EITC
is generally an effective poverty alleviation instrument,
and the purported problems are less pronounced than what is
supposed.
Holtt, Steve. "The Earned Income
Tax Credit at Age 30: What We Know." Washington, D.C.:
The Brookings Institute, 2006. http://www.brookings.edu
(accessed March 1, 2007).
Reference 4: "Lifting the Boats:
Policies to Make Work Pay" by Ron Saunders
Those who work should not be poor, and should be given opportunities
to progress. Saunders argues that while it is important to
get the unemployed into the workforce, job retention would
be a problem, since these jobs do not pay enough to pull workers
out of their financial difficulties.
Saunders agrees that wage supplements can
lift such workers from poverty, without placing a disproportionate
burden on employers.
However, the ultimate ambition of wage supplementation
is for workers to advance beyond the need of a wage subsidy.
For that, access to skill-upgrading programmes and adult education
should be supported. Saunders cautions that investment in
this aspect could be compromised because decreasing wage subsidies
with higher pay creates a disincentive against upgrading.
Saunders, Ron. "Lifting the
Boats: Policies to Make Work Pay." Ottawa, Ontario:
Canadian Policy Research Networks, 2005. http://www.cprn.com
(accessed March 1, 2007).
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