Has “In-Work” Benefit Reform Helped the Labor Market?

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Abstract
Welfare policy toward low-income families in the United Kingdom experienced a significant shift toward “in-work” benefits in the late 1980s and 1990s. Although a work requirement for some forms of benefit receipt has existed in the United Kingdom since the late 1970s, the shift in policy began in earnest with the introduction of the Family Credit (FC) in 1988—a minimum-working-hours-based credit for families with children. After a number of reforms during the early 1990s, FC was replaced by the Working Families Tax Credit (WFTC) in 1999. This chapter focuses on the impact of “in-work” benefit reform on the British labor market. It first describes the underlying labor market trends and then considers the reforms in the United Kingdom and their impact on work incentives. It also draws a direct comparison with the impact of the Earned Income Tax Credit (EITC) reforms in the United States. The chapter concludes by evaluating the recent WFTC reform in the United Kingdom.

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