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Compliance Study: United States

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3. Micro: Score: 0

“...we pledge to carry out practical reforms, consistent with the specific situation in each of our countries, aimed at achieving a high level of employment and widely-share prosperity: these include tax and social system reforms to ensure that “work pays,” particularly for the least well-off; lowering social security charges which place a burden on low-skilled jobs, in countries with high indirect labour costs; and improving public employment agencies.”

Facts and Analysis

(a) Labour supply - Score: +1

The US federal government in 1996 has undertaken actions in keeping with this commitment. There have been three initiatives.

---Welfare reform---

Welfare support in the US has been funded and guaranteed by the Federal government but administered by the State governments under Federal guidelines. The Federal government changed the scheme in November 1996. Under the new rules, the Federal government continues to fund welfare support but the level of support is no longer guaranteed and the amount of funding has been capped. Moreover, under the new rules, the States are now allowed to set their own guidelines in administering welfare support. In particular, States are free to decide the maximum length of time for which welfare can be received; whether five or two years. The measure will pressure the long term unemployed back into the labour force.

---Child tax credit ---

The recent fiscal 1998 budget agreement proposes to raise the child tax credit by $500 per child. This measure reduces the cost of entering the labour force. This is particularly the case for single mothers for whom alternative child care is a major expense.

---Minimum wage increase---

Legislation has been passed to increase the minimum wage. The minimum wage was increased by 50 cents an hour in October 1997 and will be raised by a further 40 cents in September 1998. This measure increases the incentives for the most lowly paid to enter the work force.

(b) Labour demand - Score: -1

There have been no significant measures initiated to promote the demand for labour. The reduction in the capital gains tax was partially promoted as a measure to increase employment. However, the impact is indirect through the positive impact on investment and consequently on economic growth.

(c) Labour institutions - Score: -1

There have been no significant measures initiated to develop employment agencies.

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