Incentives for the Low-Paid: Setting the Scene

Improving incentives for the low-paid is an important objective for the low-paid themselves and for the economy as a whole. Providing a constructive means for people to enhance their well-being by their own efforts is an appropriate social goal. The route may be working longer hours, or seeking out a better-paid job, or acquiring more marketable skills. Improving incentives is a matter of making the extra effort or investment entailed appear worthwhile. This also applies to people not currently receiving a wage, who might be discouraged from labour market participation because they do not regard the expected benefit from working as sufficient (this expected benefit depends not only on gross wage rates attached to particular jobs and on the tax-benefit system but also on the probability of acquiring particular jobs). Thus we should not restrict ourselves to consideration of the currently low-paid, but should also bear in mind the circumstances of groups with a marginal attachment to the labour market, including the unemployed. The economy as a whole can benefit through the extra output produced when the quality and quantity of labour input is increased. This is particularly important when demographic trends point to a fall in the number of young people entering the labour market in the next few years (NEDO, 1988).