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Financial Consequences of Employment Transitions

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Benefit systems that partly compensate for lost earnings are characterised by a tradeoff between income protection and maximising the financial gain from work. This is most apparent in the case of unemployment benefits. In addition, means‐tested benefits, such as social assistance or housing benefits, are reduced or withdrawn as earnings increase and can thus lessen the financial reward of taking up a new job or working longer hours. While benefits provide income during unemployment, taxes and social security contributions can adversely affect work incentives by reducing the net value of earnings when taking up work. This chapter quantifies the balance of these effects. It measures the income differentials between different work situations in order to determine the financial consequences of moving between them.

Document Type: Review Article

Publication date: January 1, 2008

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