In this paper, we estimate the difference in long-run after-tax and transfer income from
employment and from non-employment available in January 1998 to families in France that
received the Guaranteed Minimum Income (RMI) in December 1996. Based on estimated
wages we compute potential increases in disposable income (without accounting for
opportunity costs such as child care or transportation). The observed wages received by
welfare recipients are very low because of a high probability of part-time work, including for
men. Based on the wage distribution, and supposing that the adult in the household with the
highest potential earnings is the one employed, we find that 74% of welfare households
would have an increase in disposable income if they were to be employed, relative to their
disposable income in the absence of employment, and that the median gain would be around
198 euros per month. Very low gains are frequent however. In addition, single mothers are
the group for which the fewest number of households (43%) would gain from employment.
The share of households that would have in increase in income grows to 96% when we focus
exclusively on couples and consider both members working. As the wage distribution used is
very atypical, we build an upper bound estimate, using a representative survey of the working
population in 1998. This is equivalent to assuming that RMI beneficiaries do not differ from
the rest of the population in terms of their unobserved heterogeneity. The share of
households that have an increase in disposable income from working goes from 74% to 89%,
with the shares for single mothers still the lowest.
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