The Theory and Practice of Wage Subsidisation: Some Historical Reflections

Economists explain welfare dependency of the unemployed and in-work poverty by the low labour market quality of the poor. Work can be made to pay by working family tax credits. But these might lower wages and price nonrecipients out of the market, widening the eligibility for the wage supplementation and raising social welfare bills. This was precisely the effect of the Speenhamland system of wage supplementation of the early 19 Century which permanently affected labour markets, and attitudes to welfare and the poor. The possibility of working family tax credit having a similar effect cannot be ruled out. JEL Codes: J58, J78, J4, I38