Does work pay in France? Monetary incentives, hours constraints, and the guaranteed minimum income

This paper uses a representative sample of individuals on France's main welfare program (the Revenu Minimum d'Insertion, or RMI) to estimate monetary incentives for employment among welfare recipients. Based on the estimated joint distribution of wages and hours potentially offered to each individual, we compute potential gains from working in a very detailed manner. Relating these gains to observed employment, we then estimate a simple structural labor supply model. We find that potential gains are almost always positive but very small on average, especially for single mothers, because of the high implicit marginal tax rates embedded in the system. Employment rates are sensitive to incentives with extensive margin elasticities for both men and women usually below one. Conditional on these elasticities, simulations indicate that existing policies devoted to reducing marginal tax rates at the bottom of the income distribution, such as the intéressement earnings top-up program, have little impact in this population due to their very limited scope. The negative income tax (Prime pour l'emploi), seems to be an exception.