Increasing labour market activity of poor and female: Let’s make work pay in Macedonia

The objective of this paper is to simulate the effects of two alternative social policies – individual and family in-work benefits – on labour market choices in Macedonia, with special reference to poor and females. To that end, we use ex-ante analysis relying on a combination of a tax and benefit micro-simulation model for Macedonia (MAKMOD) and a structural model for the labour supply, both utilizing the 2011 Survey of Income and Labour Conditions. Results suggest that the proposed reforms will result in sizable effects for the working choices of Macedonians. The family in-work benefit is found to be more effective for singles and would lead up to 6 percentage points increase in employment. On the other hand, the individual in-work benefit works better for couples whereby employment would increase by 2.5 percentage points. In addition, the effects are found to be larger for poor and females, the categories that are most prone to inactivity in Macedonia.