Welfare benefits and labour supply: a review of the empirical evidence

Abstract

Assertions about the impact of welfare benefits on labour supply have often been made in claims that the New Zealand benefit system is in need of reform. This paper provides a review of empirical evidence of the relationship between labour supply decisions and the level, duration and eligibility requirements of unemployment benefits and income support provisions such as the Domestic Purposes Benefit. No clear cut conclusions emerge from the literature. In general the empirical/ink between disincentives to work in the benefit system and actual work behaviour is either insignificant or not substantial in terms of total labour supply.