Does income disregard work?

Abstract

The article evaluates a three-year experiment involving temporary amendment of the Act on Social Assistance in Finland in 2000–2003. The amendment enabled social assistance recipients to earn some income without having it deducted from social assistance payments (income disregard). Register data obtained from national and municipal sources were used to evaluate the impact of the reform. Income disregard did improve the incentive to accept work, and it did improve the economic situation of households. However, the results indicate that only a fraction of the target population received more income from work after the reform. The modest effects may be attributed to the fact that in the municipalities income disregard was not applied to the fullest extent permitted by the law. Another explanation is the shortage of low-paid jobs; that is, the absence of demand for the less-qualified labour force.