The Case for Labour Supply Incentives: A Comparison of Family Policies in Australia and Norway

Melbourne Institute Working Paper No. 27/07

Date: October 2007


Guyonne Kalb
Thor O. Thoresen


Many of the Australian family support schemes are income-tested transfers, targeted towards the lower end of the income distribution, whereas the Norwegian approach is to provide subsidised non-parental care services for families and universal family payments. Using microsimulation models developed in Australia and Norway, we discuss the scope for introducing policy changes to encourage parents’ labour supply within these two types of family transfer designs. The analysis highlights that the case for labour supply encouraging policy changes is restricted by the economic environment and the role that has been given to family policy in the two countries. Whereas there is considerable potential for increased labour supply of Australian mothers, for example through a move towards a Nordic style family policy design, improving labour supply incentives may have detrimental distributional effects and is likely to be costly. The Norwegian situation is different: mothers already have high labour supply and any adverse distributional effects of further labour supply incentives occur in an economy with low initial income dispersion. However, the large amount of resources already used for family support in the Norwegian case, does not promote further initiatives which would benefit this segment of the population. This paper aims to examine three different types of effect arising from a policy change making the Australian familyrelated payments universal and a policy change reducing the cost of childcare in both countries. The types of effect considered are changes in labour supply, income distribution and the cost to government.

Download Paper