Wage Distance Regulation in Social Welfare Programs : An Option Theory Perspective

@inproceedings{EIST2000WageDR,
  title={Wage Distance Regulation in Social Welfare Programs : An Option Theory Perspective},
  author={H OLGER F EIST},
  year={2000}
}
  • H OLGER F EIST
  • Published 2000
It is often argued that low skilled workers have an incentive to escape to the unofficial sector, if welfare benefits come too close to the net wage in the official sector. Upper limits of welfare benefits often serve as an instrument to ensure a sufficiently high income differential between sectors. However, if unofficial sector income is insecure, and if a change of sectors is costly, an option value of working in the official sector has to be taken into account. This option value reduces the… CONTINUE READING

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