Supporting into‑work benefit reform in Spain

In Spain, the Complemento de Apoyo al Empleo (CAE) allows individuals to receive unemployment benefits whilst in employment. This paper sets out the findings and recommendations of a project aimed at improving the CAE, drawing on international good practice, as well as analyses carried out using the OECD TaxBen model and administrative data. Strengthening the role of CAE as wage insurance – by linking its amount either to UI entitlements or directly to the previous wage – would provide stronger work incentives when wage loss at re-employment is greater; and would limit low-wage traps for full-time workers. However, such reforms would tend to offer lower net income and weaker work incentives for workers transitioning between two low-paid jobs, compared with the current CAE. Strengthening the role of CAE as wage insurance would also increase CAE coverage among re-employed individuals and, consequently, fiscal costs, albeit to a moderate extent. Higher CAE coverage would particularly benefit certain vulnerable groups whose coverage is currently relatively low, such as the low skilled, the youth, and workers in southern regions.