Citizen’s Income News, Summer 2011

The Institute for Fiscal Studies has published Universal Credit: A Preliminary Analysis. Their researchers write: ‘Our empirical analysis in Sections 4 and 5 illustrates well the constraints all governments face when contemplating radical welfare reform. Universal Credit will strengthen financial work incentives for some, as intended, but weaken them for others. In general, incentives to work will be strengthened for the main earner in a family who works part-time or has low earnings, and will be weakened for those with higher earnings and for second earners in couples. Marginal effective tax rates will tend to fall for those on lower earnings, and rise for those on higher earnings, although this pattern also depends on how many earners there are in the family. The reform will also lead to both winners and, in the long run, losers. Because of the way the parameters of Universal Credit have been set, couples, and particularly those with children, look set to gain by more, on average, than single-adult families, particularly lone parents, who will lose on average according to our analysis. But, in general, the impact on incomes is progressive, with the bottom income deciles gaining the most as a fraction of income.’ (pp.67-8)

The Institute for Fiscal Studies has reported research on the National Minimum Wage (NMW) undertaken by a team at Royal Holloway College in the University of London. They find that ‘the NMW is associated with a significant fall in wage inequality in the bottom half of the distribution’, and that in those areas where the NMW has had the largest effect on wage levels, declines in wage inequality are steeper than elsewhere. ‘While the overall effect of the NMW on employment rates averaged over its existence is neutral, [they] do find small positive employment effects from 2003 onwards. Likewise, the association of the NMW with unemployment has been negative in recent years. NMW effects on hours have been mixed, but overall there is no compelling evidence to indicate that the NMW upratings have had an adverse effect on full-time total hours of work … The areas where the NMW bit most have experienced larger falls in unemployment, particularly in the latter half of the sample period’, (Peter Dolton, Chiara Rosazza Bondibene and Jonathan Wadsworth, ‘The UK National Minimum Wage in Retrospect’, Fiscal Studies, vol.31, no.4, pp.510-532).