In-work Benefits in Belgium: Effects on Labour Supply and Welfare

Abstract

Belgium has implemented, following the example of other countries, in-work benefit policies since the early 2000’s, with the objective of increasing employment rates and fighting poverty. Belgian in-work benefits differ from most other in-work benefits as eligibility requires low hourly earnings. We study the effects extensions of those benefits would have both on labour supply and welfare, using a random-utility - random-opportunity model estimated on cross-sectional SILC datasets. Results show that further increasing the benefits would slightly increase labour supply and welfare of low-to-middle income deciles, but at very high net cost per job created. We compare our results with existing research and explain some mechanisms that possibly led to an underestimation of negative intensive margin labour supply responses in previous simulations.