Labour Market Policy and Welfare Reform: Meeting Distribution and Efficiency Objectives

Alongside the growth in overall employment and the steady rise in average real incomes over the 1990s, many developed countries experienced a concentration of low labour market attachment and low pay among certain groups in society. In response, the focus of welfare policy shifted towards targeted ‘making work pay’ programs. This paper considers the validity of the arguments underlying this shift in welfare policy. It examines two broad classes of policies: active labour market programs and earned income tax credits.