Altering the Dutch labour market

Questioned is whether subsidized labour can increase social welfare compared to current redistribution policies. Three main policies of the Dutch welfare state - the assistance benefit, statutory minimum wage, and legislation favouring unions - are discussed. The assistance benefit causes wages to rise and unemployment to grow. Also, job-searchers put less effort in their search. The statutory minimum wage and labour unions favouring legislation causes wages to be above market-clearing levels, thus causing higher levels of unemployment. Due to higher unemployment levels among the low-skilled these policies do not achieve redistribution (efficiently). An alternative of subsidized labour is given. Such subsidy will improve employment, while government expenditure will not rise considerably. It provides an incentive to have a job, and assures a minimum income. The Earned Income Tax Credit (EITC) of the U.S.A. is given as an example of such a subsidy. Several models are provided to demonstrate the positive effect on social welfare, while redistributing income.