Do Employment-Conditional Earnings Subsidies Work?

Cash transfers and tax credits to people in paid work but with low earnings are increasingly prominent in affluent countries. How effective are these programs at reducing poverty and increasing employment? The experiences of the United States and United Kingdom suggest that, in an economy with weak unions and limited labor market regulations, an employment-conditional earnings subsidy increases employment among persons at the low end of the labor market but reduces low-end wage levels somewhat. Overall, it appears to boost the absolute incomes of low-end households. Even so, cross-country comparison offers little support for a conclusion that the institutional configuration in these countries, including the employment-conditional earnings subsidy, is especially effective at generating high and rising employment, high and rising incomes among low-end households, or low and decreasing relative poverty rates. Quite a few other affluent nations have done as well as or better than the United Kingdom and the United States in recent decades.