Introduction
Welfare to Work
In its first report, in 2002, the group presented a concrete model of how the welfare state could be reformed in order to tackle this important problem. It has been argued that traditional social programmes of the modern welfare state have concentrated too much on replacing incomes for those who do not have a job, thereby generating implicit minimum wage expectation that the private industry would have to overbid to employ the workers.
This offers an incentive to those capable of earning only very low wages to qualify for (higher) benefits by declining jobs that, as a result, are also not offered. In this papers alternative is developed, which is already implemented in varying degrees in a number of countries, in which tax credits are used to supplement the wages available to low productivity workers.
A detailed proposal is put forward on a basis which should allow the living standards of both the working and most of the non-working poor to rise at no net cost to governments, while raising employment output and growth. In essence, it implies requiring government work in exchange for existing welfare benefits, cutting welfare benefits for those who do not work although they are classified as being able to, and paying a wage subsidy to those who take low paid jobs in the private sector.
Since the appearance of this first report of the EEAG, this issue has entered the discussion in Germany and several other countries. Concrete policy changes, like the German “Agenda 2010”, the “Harz” Reforms, or the present discussion of the “Kombi-Lohn” (a special form of wage subsidies) have been inspired by this proposal as well as the parallel “activating social aid” proposal of the Ifo Institute. The chapter provides a coherent conceptual structure to think about welfare state reform of this kind and gives in detail a possible solution to current labour market problems.
