What is the evidence of the impact of wage supplements on poverty?

Rationale

Policies aimed at 'making work pay' through directly subsidising the wages of low paid workers have been introduced both in the UK (eg, tax credits) and overseas. Wage supplements can make taking a low-paid job seem more worthwhile, encouraging labour-market entry and attachment. They can also enhance the income of those unable to work full-time hours due to, for example, the caring responsibilities of lone parents.

Evidence

  • There is a large body of evidence which looks at the relationship between wage supplements and poverty reduction both in the UK and elsewhere. Numerous large scale quantitative evaluations/simulations (eg, Piachaud and Sutherland, 2001; Brewer and Shephard, 2004) have assessed the impact of measures including wage subsidies to 'make work pay' in the UK, including data on trends in the proportion of parents in employment, and the number of children in workless households.
  • Analysis by the Institute for Fiscal Studies (Brewer, Browne and Joyce, 2011) also provides forecasts of the impact of the new Universal Credit on relative and absolute poverty.
  • Qualitative investigations (eg, Wiggan, 2010) have aimed to uncover the role of the UK tax-credit system in shaping decisions about employment and unpaid care work. There is also a lot of evidence from the United States (eg, Nagle and Johnson, 2006) on the impact of Earned Income Tax Credits on helping people to escape poverty.
  • We have less evidence about the impact of wage supplements on progression. It has been argued that wage subsidies can trap recipients into low-wage, low-quality work. However, using Labour Force Survey panel data Lydon and Walker (2005) compare UK wage growth before and after Working Families' Tax Credit (WFTC) replaced Family Credit (FC) and found that wage growth had improved for those on the new credit.

Gaps

1. There is a relatively good evidence base on wage supplements and poverty, although this is weaker around progression. Are we missing any evidence on the relationship between wage supplements and progression?

2. Are we missing any evidence on the link between wage supplements and poverty outside of the UK and the US?

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