Safety net still in transition: labour market incentive effects of social support in Poland and Germany

Many aspects of the economic transition which started in 1989 in Poland are by now complete. However, the route Polish governments have so far taken concerning the system of support for low-income families still implies very different poverty alleviation schemes compared to those found in many developed countries. We examine the Polish system of social assistance in a comparative context with Germany and focus on its implications for financial incentives to work. The paper shows the effect of extending the financial support system for poorest families in Poland on labour market incentives. We demonstrate that assumptions concerning sharing of resources among families within households have significant implications on the resulting financial incentives and importantly change the implied consequences of the reforms. This is the case especially for singleadult families. 74% of single adults without children, and 53% of lone parents in Poland live in multi-family households. Given the limited role of the state in providing a means-tested safety net, these multi-family arrangements play an important role as far as alleviating poverty is concerned, but they also have significant implications for incentives on the labour market.