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European Sociological Review Advance Access originally published online on November 24, 2008
European Sociological Review 2009 25(4):459-474; doi:10.1093/esr/jcn062
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© The Author 2008. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

In-work Benefits for Low-wage Jobs: Can Additional Income Reduce Employment Stability?

Gerhard Krug

Gerhard Krug, Institute for Employment Research (IAB), Regensburger Str. 104, 90478 Nuremberg, Germany. Email: Gerhard.krug{at}iab.de

In-work benefits, which provide financial supplements to employees in low-wage jobs, are an instrument of active labour market policy used to encourage the labour market integration of low-skilled workers and the long-term unemployed. This paper argues that although government subsidies increase overall wages, employees interpret them as a signal that employers are unwilling to behave according to the norm of reciprocity. This leads to negative side-effects on employment stability, counteracting the positive effects of additional income on employment stability. The present article tests these hypotheses using a survey of in-work benefit recipients, with non-recipients as a comparison group. The method of propensity score matching is applied to eliminate all compositional differences between benefit recipients and non-recipients except for the source of their income. It is shown that in-work benefits lead to perceived violations of reciprocity. However, whether this explains why in-work benefits are not successful in promoting employment stability remains an open question.

Manuscript received: January 1, 2008.


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