The twin problem of in-work poverty and persistent labour market difficulties of low-skilled
individuals has been one of the most important drivers of tax-benefit policy reforms in OECD countries in
recent years. Employment-conditional cash transfers to individuals facing particular labour-market
challenges have been a core element of “make-work-pay” policies for some time and are now in use in
more than half of the OECD countries. They are attractive because they redistribute to low-income groups
while also creating additional work incentives. But like all social benefits, they have to be financed, which
creates additional economic costs for some. This paper discusses the rationale for in-work benefits (IWB),
summarises the main design features of programmes operated in OECD countries, and provides an update
of what is known about their effectiveness in terms of reducing inequalities and creating employment. As
policies aiming to promote self-sufficiency, wage subsidies and minimum wages share a number of the
objectives associated with IWB measures. We review evidence on the effectiveness of minimum wages
and wage subsidies and discuss links between these policies and IWBs. Finally, we outline some potential
consequences of weakening labour markets for the effectiveness of make-work-pay policies.
