Caught in the trap? The disincentive effect of social assistance

While …financial incentives usually have a signifi…cant effect on the labor supply of married women
and single mothers, the evidence about the participation elasticity of childless singles, and single males
especially, is more scant. This is, however, important in countries like France and Germany, where
single individuals constitute the core of social assistance recipients. As yet, there is no conclusive
evidence about whether, and to what extent, this group is affected by the fi…nancial disincentives embedded in the generous redistributive programs in place in these countries. In this paper, we exploit a
particular feature of the main welfare scheme in France (Revenu Minimum d'Insertion, RMI), namely
that childless adults under age 25 are not eligible for it. Using a regression discontinuity approach and
the French micro-census data, we …find that the RMI reduces the employment of uneducated single
men by 7% - 10%. Important policy implications are drawn.