An ex ante evaluation of the Revenu de Solidarité Active by micro-macro simulation techniques

Canova, Luciano; Piccoli, Luca; Spadaro, Amedeo Article An ex ante evaluation of the Revenu de Solidarité Active by micro-macro simulation techniques IZA Journal of European Labor Studies Provided in Cooperation with: IZA – Institute of Labor Economics Suggested Citation: Canova, Luciano; Piccoli, Luca; Spadaro, Amedeo (2015) : An ex ante evaluation of the Revenu de Solidarité Active by micro-macro simulation techniques, IZA Journal of European Labor Studies, ISSN 2193-9012, Springer, Heidelberg, Vol. 4, Iss. 17, pp. 1-20, https://doi.org/10.1186/s40174-015-0040-3 This Version is available at: https://hdl.handle.net/10419/127459 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ ORIGINAL ARTICLE Open Access An ex ante evaluation of the Revenu de Solidarité Active by micro–macro simulation techniques Luciano Canova 1 , Luca Piccoli 2* and Amedeo Spadaro 2,3 * Correspondence: [email protected] 2 University of Balearic Islands, Cra. De Valldemossa km 7.5, 07122 Palma, Spain Full list of author information is available at the end of the article Abstract This paper aims to investigate the effects of the introduction of an active welfare state measure in France, the Revenu de Solidarité Active, which replaced the old system of social minima. By using a micro–macro simulation model, we characterize the effects on households’disposable income, labor supply, wages, GDP, public deficit, and other micro and macroeconomic aspects. Our findings suggest that although increasing public expenditure, the reform largely repays its cost by reducing involuntary unemployment, increasing labor supply and private consumption and thus improves GDP and the deficit/GDP ratio. If the great recession did not occur, poverty and inequality would have been significantly reduced by the RSA reform. JEL codes: I38, C63, C68, J22, H31 Keywords: Revenue de Solidarité active; RSA; Active welfare state; Microsimulation; CGE; Micro–macro; Labour supply; Policy evaluation 1 Introduction In this paper we aim to study the micro and macroeconomic implications of the implementation of an active welfare state reform in France, the Revenu de Solidarité Active (RSA). RSA is a modification of the pre-existent minimum income scheme, which had been adapted in 2009 after experimentation and had substituted the Revenu Minimum d’Insertion (RMI) and the Allocation Parent Isolé (API). To this aim we use SYSIFF 2006, a micro–macro simulation model for the French fiscal system based on the 2006 Budget de Familles survey data, a nationally representative household budget data survey collected in France every five years (see Canova et al. 2009 and Magnani et al. 2013 for a technical description of the model). The international crisis, together with the Euro-zone recession, has put substantial pressure on the nature and structure of welfare states, particularly with regards to minimum income schemes. Governments are therefore trying to react in order to design policy instruments more adapt to answering the needs of a modern and inclusive active welfare state, which, at the same time, does not produce negative effects on labor supply with the beneficiaries trapped into a sort of never-ending job instability. All 27 EU countries except Greece and Italy have a national minimum income scheme, providing to recipients a monetary buffer to cope with periods of unemployment for a usually limited period of time. Frazer and Marlier (2009), and subsequently © 2015 Canova et al. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http:// creativecommons.org/licenses/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly credited. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 DOI 10.1186/s40174-015-0040-3 a report of the Parliamentary Budget Office of Hellenic Parliament (2014) 1 , classify EU minimum income schemes in four different types of measures (see also Spadaro et al. 2014 for an overall description of EU welfare states): i. ‘Universalistic measures’as simple and comprehensive schemes (AT, BE, CY, CZ, DE, DK, FI, NL, PT, RO, SI, SE) open to all potential applicants with insufficient means to support themselves. In some countries (e.g. AT, DE) unemployment benefits and social assistance schemes are separated, whereas in others (e.g. PT, SE) just one tool covers both needs. ii. A ‘basic and discretionary measure’: Some countries (EE, HU, LT, LV, PL, SK) have quite simple and non-categorical schemes, with rather restricted eligibility and coverage of people in need, often due to the low income level at which the means test is set. iii. An ‘integrated network of different categorical measures’: other Member States (ES, FR, IE, MT, UK) have developed a complex network of different, often categorical, non-contributory schemes supporting specific target groups such as lone parents, the ill or disabled, the unemployed, carers, survivors and pensioners and low-paid workers. In some cases these categorical measures are accompanied by a general scheme of last resort. iv. Finally, there are Member States (BG, EL, IT) who have very ‘limited, partial or piecemeal arrangements’, which are in effect restricted to quite narrow categories of people and do not cover many of those in urgent need of income support. With regards to Italy, no widespread minimum income mechanisms have been created at a national level, even though innovative examples of local welfare systems exist through experimentations; however, they are often weakened by a fragmented and inefficient legal framework for social protection together with the targetization to specific characteristics. Greece too has been implementing a pilot scheme established by the Law 4093/2012 in order to ensure a decent minimum standard of living. First, implementation regards 13 municipalities for the cost of €20 million (period 2013–2014). The amount of the minimum income starts from 200 euros for a single person and increases depending on the recipient’s marital status. For married couples it adds 100 euros for each adult member of the family other than the spouse and 50 euros for each child. To make it clear, a couple with two children without any source of income will receive the entire amount, i.e., 400 euro. Availability criteria include residence, income and assets. With an unemployment rate at 11.4% at the European level 2 in December 2014, the background of this article is the investigation of how restructuring the welfare state can be necessary in order to guarantee both social protection to workers and an incentive for people to work and therefore contribute to boost the economy. Through the reform of RSA, France has gone towards a minimum income scheme combining flexibility of the measures, therefore, thinking towards efficiency of public expenditure, and security of workers. In a word, RSA constitutes a typical example of the flexicurity 3 framework. The research questions we try to answer are: does the introduction of RSA produce significant positive effects in terms of employment, poverty and inequality? Is the cost of the reform sustainable for the French public finances? The rest of the paper is organized as follows. Section 2 sums up what literature has produced in terms of empirical evaluation of costs of RSA. Section 3 describes the Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 2 of 20 mechanisms to compute the fiscal instruments under investigation. Section 4 presents SYSIFF 2006, the micro–macro simulation model used to perform the reform simulations. Section 5 reports the results and Section 6 concludes. 2 Empirical evaluations of the cost of RSA: the previous literature The crisis has determined a huge impact on the number of potential beneficiaries of RSA: in September 2010, 1.8 million households (which corresponds to 3.8 million individuals, or about 6% of total population). 1.1 million households benefited from basic RSA —the full benefit given to the unemployed —which is in line with the coverage of previous measure, RMI. The crisis led to a sharp increase in people eligible for this minimum income scheme, in the order of 20% in the first year. Numbers in June 2011 showed a stable path for RSA beneficiaries (1.87 million households and 3.9 million people) with a slowing down in the increase (3.7%) but a significant boost of families which get the basic RSA, (1.4 millions). But statistics worsened again at the end of 2013, with RSA beneficiaries increased to 2.3 million households (4.9 million people), 7% of the whole population (Cazain 2014). Most of the beneficiaries are in the cohort 25–34 years old (36%), while recipients in the 50–65 population constitute 21% of the entire sample. About 75% of RSA recipients have benefited from the scheme for more than 1 year, while 33% is still getting this transfer after 3 years (OECD 2011). In terms of the impact of RSA on labor supply and the labor market, any evaluation is extremely complex and therefore only qualitative investigations are available so far from the government side. To our knowledge, a complete ex-post evaluation of RSA does not exist in literature. Therefore, we could not find any official report with final estimations of costs and number of beneficiaries. An experiment involving 15,800 households of potential beneficiaries had been run in 34 Departments from 2007 to 2009 (Comitè National de Evaluation RSA 2012), but Thibault (2014) criticized its results because of confounding effects in the payment schedule and non-comparable duration of the transfers. Timing of experimentation was not sufficient to provide empirical evidence able to modify or even cancel the generalization of the measure to the entire population, and, for this reason, the experiment has been consider more a simulation of the potential effects of RSA than a statistical test of its efficacy. Besides that, RSA implementation took place during the crisis, changing completely the setting and the context of the experiment. Data from the report 2012 show that RSA beneficiaries find more often temporary or part-time jobs. On average, 3% of the beneficiaries find a job each month, but, overall, recipients seem to be trapped in a long term unemployment path. A few empirical works tried to evaluate instead the effects of RSA focusing on specific aspects. Danzin et al. (2012), for example, found that RSA increase the opportunity to exit unemployment only for single women with children. Bargain and Vicard (2012), using yearly data from INSEE (the French statistical institute) and including a representative sample of the French population over the period 2004–2011, assessed the effect on employment of the over 25-year-olds, finding that RMI had a slight positive impact on employment, while RSA did not produce any significant effect in 2010–2011. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 3 of 20 Bargain and Doorlay (2013), using a regression discontinuity method, study the effect of the pre-2009 French social assistance program, the RMI, on labor supply, and they find a drop between 5 and 9% in the employment rate of young high-school dropouts. The introduction of RSA restored financial incentives to work and alleviated the inactivity trap. Final, a study by Domingo and Pucci (2012) has been devoted to people who, even if eligible for the RSA in 2011, did not get the transfer or the total amount available. The article addresses the problem of non-take up, estimating that more than 400,000 people would have exited poverty if RSA had been received by all potential beneficiaries. 3 Computation of social benefits One of the objectives of the RSA reform is to simplify the computation of the benefit itself, especially as regards the exit mechanism, which under the previous scheme was rather complicated. In what follows we describe in details of how RMI, API, PPE (Prime Pour l’Emploi, an in-work tax credit) and RSA are computed. 3.1 Revenu Minimum d’Insertion (RMI) The computation of RMI starts with the definition of a maximum amount of benefit depending on household composition. For 2008, the last year in which RMI was at work, these maximum amounts can be calculated from Table 1. For example, the maximum amount of RMI for a couple with two children was €940.61 per month. The maximum amount of RMI is paid to the unemployed for a maximum period of 12 months. If an unemployed person entitled for RMI starts working, the benefit is reduced according to the income received, the RAP (Revenus d’Activité Professionel). This mechanism is called dispositif d’interessement and works as follows. For part-time workers (those working less than 78 hours per month) the amount of the benefits received is fully cumulated with income from work for the first 3 months; then, from the 4 th to the 11 th month, RMI is computed curtailing 50% of the RAP from the maximum amount of the benefit; after 12 months, 100% of RAP is curtailed from the benefit. For full-time employees, instead, for the first 3 months, the maximum amount of RMI is given regardless of the RAP; later on RMI is substituted by a monthly forfeit of €150 for a single person and €225 for larger families. A “prime de retour à l’emploi”(a sort of award for having found a job) of €1,000 is given to full-time workers at the end of the entitlement period (12 months). The mechanism of computation of RMI with respect to job duration is summarized by Table 2. Table 1 Maximum monthly amounts of Revenu Minimum d’Insertion (RMI) by family composition in 2008 Family size Resources threshold Singles €447.91 Second person in the household Add €223.96 Each additional person Add €134.37 Each child after the 3 rd Add €179.16 Source: Memento Social 2008, Francis Lefebvre Editions. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 4 of 20 The income resources that compute in the RAP are (see the acronyms table for a short description of each voice): indemnités journalieres;allocations chômage; pensions of any type; prestations familiales;allocation aux adultes handicapés; revenues from real estate and from capital; income from work; Aide au Logement (reduced by a forfeit according to the household size). The resources that do not enter the RAP are: Allocation Pour Jeune Enfant, for the period of pregnancy till the first month after child’sbirth;Allocation Rentrée Scolaire;Allocation Education Speciale;scolarships; and PrimedeRetoural’Emploi. 3.2 Allocation Parent Isolé (API) API is an allowance provided to single parents (or divorced, or widows) who have one or more children. The maximum monthly amount of API is €566.79 for a pregnant women plus €188.93 from the birth and for each additional child. Similar to the RMI, the benefit is means tested and is reduced if the parent earns some RAP. If a beneficiary exits unemployment and starts working, the same dispositif d’interessement as that for RMI is applied. So RMI and API work exactly in the same way except that the maximum amounts are different. 3.3 Prime Pour l’Emploi (PPE) The PPE is a tax credit which is given to low income workers. In terms of RAP, the ceiling must respect the following thresholds: from €3,743 to €17,451 for singles, divorced or widows without dependent children or for bi-active couples; up to €26,572 for singles, divorced or widows raising their children alone or for mono-active couples. The amount of PPE is computed as follows: 7.7% of the amount of RAP up to €12,475; 19.3% times the difference between €17,451 and the amount of RAP above €12,475; and 5.1% times the difference between €26,572 and the RAP above €24,950. A benefit supplement is provided for specific cases: €36 for each dependant family member for singles, biactive couples and mono-active couples up to €17,451, or €36 independently of the person Table 2 Mechanism to compute the Revenu Minimum d’Insertion (RMI) in 2008 Part time worker Working period Monthly disposable income 0 months 100% RMI 0-3 months RAP + 100% RMI 4-11 months RAP 1 + max{RMI –50% RAP; 0} 12 months RAP + max{RMI –100% RAP; 0} Full time worker Working period Monthly disposable income 0 months 100% RMI 0-3 months RAP + 100% RMI 4-12 months RAP + €150 for a single RAP + €225 for larger families After 12 months €1000 forfeit (Prime de Retour á l’Emploi) Note: 1. RAP is the acronym for Revenu d’Activité Professionelle, or income from work. Source: Memento Social 2008, Francis Lefebvre Editions. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 5 of 20 in charge for mono-active couples above €17,451. The mechanism for the computation of PPE is summarized by Table 3. 3.4 Revenu de Solidarité Active (RSA) The RSA is a household benefit which has been introduced in France on July 2009 4 in order to reduce the administrative costs and its economic inefficiencies. RSA is therefore projected to rationalize the French system of social minima, which was composed before by RMI, API and PPE. RMI and API are a source of minimum income, respectively, for people not working (but in search for a job) and for singles with one or more children. PPE, instead, works as a tax credit giving an extra-amount of money to low income workers. Again, the idea of RSA is to unify the two pre-existing public transfers (RMI and API) into a single measure which provides beneficiaries with a minimum set of resources and will constitute an incentive for people to exit unemployment and find a new job as an income complement. The computation of RSA is simpler than those of RMI and API and is synthesized by the following formula RSA ¼RSAmax−0:38RAP; where RSA max is the maximum amount computed exactly by the same values that apply for RMI and API. The new system provides a fixed withdrawal rate of 0.62. This means that if a person exits unemployment, for each earned euro from work, she can save €0.62 of RSA. An important difference with RMI and API is the elimination of dispositif d’interessement and of the limit of 12 months of entitlement. The amount of RSA varies over time according to the income from work of the beneficiary, but there is no change in the formula. Since the first phase of implementation, PPE has been coexisting with RSA, while in the long run the policy proposal is to eliminate PPE from the set of available measures. While the two measures coexist, the mechanism is such that potential beneficiaries to both benefits are entitled to ask for the largest one. Although the two instruments work almost as substitutes, there are relevant differences between the two: i. RSA works as an income complement and is paid immediately, while PPE, being a tax credit, is paid to the beneficiary after 18 months; ii. RSA is really for low incomes (up to about €14,500 per year of gross salary for a childless single), while PPE is available also to better paid jobs (up to almost €22,200 of gross salary); Table 3 Mechanism to compute the yearly amount of Prime Pour l’EMPLOI (PPE) in 2008 Household type RAP 1 thresholds Amount Extra Singles, widowed, divorced, bi-active couples, families with one worker in charge 3,743 ≤RAP ≤12,475 RAP × 7.7% €36 for each person in charge 12,475 < RAP ≤17,451 (17,451 - RAP) × 19.3% Mono-active Couples 3,743 ≤RAP ≤12,475 (RAP × 7.7%) + €83 €36 for each person in charge 12,475 < RAP ≤17,451 (17,451 - RAP) × 19.3% + €83 17,451 < RAP ≤24,950 €83 €36 independently of persons in charge 24,950 < RAP ≤26,572 (26,572-RAP) × 5.1% Notes: 1. RAP is the acronym for Revenu d’Activité Professionelle, or income from work. Source: Memento Fiscal 2008, Francis Lefebvre Editions. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 6 of 20 iii. PPE increases with labor income up to a certain threshold, about €12,500 per year, which corresponds to around €950 of benefit. In contrast, the amount of RSA decreases with income from work and is about €620 for a salary of €12,500. Although the overlapping area can be larger or smaller depending on the family composition, it is clear that the two instruments address different work incentive targets: PPE aims to favor full-time employment, while RSA makes part-time work more attractive than not working at all. It is also worth noting that RSA is clearly appealing with respect to RMI as an active welfare state measure because its implicit marginal tax rate (due to the benefit reduction as long as income increases) is lower, 38% respect to 50%, or 100% of RMI and API depending on the work situation. In this respect, however, it should be noted that there exist other relevant benefits for low-income households that need to be acknowledged. Most notably, the Aide Logement (AL), a housing benefit provided to lowincome families that pay rent. The AL is a fixed amount upon a certain income threshold, but then reduces as household income grows by about 35 percent, thus adding to the implicit marginal tax rate. As shown by Figure 1, the implicit marginal tax rate is much larger in the range, corresponding to about €5,000 to €12,000 of gross labor income, thus reducing the work incentive in this range. There are two fundamental objectives of this policy: to create incentives for people to exit unemployment and to alleviate poverty, by reducing the number of people below the poverty line by one third (Hirsh 2008). The ‘RSA activité,’those given to the working poor, increased the median income per capita from €699 to €825 per month at the end of 2009. The effective gain may nonetheless be overestimated due to the concurrent decrease of PPE. Estimates show that the poverty rate (measured as the percentage of households below 60 percent of the median income) would be 0.3 percentage points higher without the implementation of RSA (Comitè National de Evaluation RSA 2012), which corresponds to 135,000 people out of poverty in contrast with the projection of 700,000. Of course the adverse effect of the crisis played and still plays a crucial role in affecting this trend. 3.5 RSA vs. RMI from a work incentive perspective Before turning to our micro–macro simulation model and the analysis of the results of our simulations, in this section we analyze the hypothetical effect of the two systems on disposable incomes and work incentives. To this aim we use a graph based on artificial data for specific types of households and work contracts, plotting disposable income on months worked. In particular, in Figure 2 we analyze the case of a childless single with a part-time job and a monthly wage equal to 50% of SMIC (Salaire Minimum Interprofessionnel de Croissance, or gross minimum wage for a full time worker), which is the most favorable case to RMI. This type of analysis is useful for the purpose of comparing the two systems because it is possible to verify which of the instruments determines a net gain for the beneficiary household. Because of the dispositif d’interessement that we presented in Section 3.1, if we compare RMI and RSA, in the very first months of work, the old benefit implies a better financial situation for the recipient due to the possibility of cumulating 100% of work income with the public transfer. But, as depicted below, there is a relative advantage of RSA Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 7 of 20 in time for two reasons. First, after the first three months, RSA has a withdrawal rate larger than RMI (62% vs 50%), and second, RSA does not have time limits, while RMI stops after 12 months. This kind of comparison also allows determining the break-even point, that is to say, the month after which the cumulated disposable income with the new benefit becomes greater than with the old one. Figure 2 shows the amount of disposable income for each month of work since the start of a new job. Hence the sum over time determines the cumulated available income for the time period considered. Figure 1 Disposable income composition by gross labor income. The graph illustrates the disposable income and the amount of benefits reived by a childless single worker depending on his gross labor income. The simulated benefits include: Revenu de Solidarité Active (RSA), Aide Logement (AL), and Prime pour l’emploi (PPE). Source: our simulations using SYSIFF2006 micro–macro simulation model. Figure 2 Disposable income with RMI and RSA for a single part-time worker (50% SMIC). The graph illustrates the amount of disposable income received by a childless single working part-time, receiving 50% of the minimum salary for a full-time worker (SMIC) by months of work after finding a job. Source: our simulations using SYSIFF2006 micro–macro simulation model. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 8 of 20 possibly due to a macroeconomic compensating effect of wage reduction, as detailed in the next section. The main effect, however, is the immediate one, that is the provision of an income complement to low wage workers quite likely to bring them above the poverty line. This intuition is confirmed by Table 8, which reports the proportions of winners and losers and the average gain and loss for several household types. Overall, the number of winners is smaller than that of losers, but the average gain is substantially larger than the average loss, likely because the former is mainly determined by the income complement due to the RSA and the latter by the slight reduction of equilibrium wages. Clearly, those that obtain more from the reform are the poor, but also singles and families with children are more often among the winners. A clear idea of the effect that the RSA reform has on the distribution of income is provided by Figure 3, which plots the probability density function of equivalized disposable income pre- and post-reform (in the long run scenario). It clearly depicts a shift of families in the range of €5,000-10,000 of yearly equivalized income towards a higher income bracket (€10,000-15,000). The working poor receive an income complement that in many cases brings them out of poverty. Table 5 Long run labor supply reaction of singles (Transition Matrix) Prediction 0 18 24 36 Total Choice 0 14.4 0.1 0.2 1.1 15.7 18 0.0 6.6 0.0 0.0 6.7 24 0.1 0.0 8.1 0.0 8.2 36 0.4 0.2 0.1 68.8 69.4 Total 14.8 6.9 8.4 69.9 100 Notes: Although estimation was performed separately for males and females, for simplicity this table resumes the labor reaction supply of all singles. The transition matrix should be interpreted as follows. Each cell of the matrix reports the percentage of individuals that before the reform chose the work alternative corresponding to the “choice”line and after the reform choose the work alternative corresponding to the “prediction”column. Figures in the diagonal report the percentage of individuals that did not change behavior with the reform. Source: our simulations using SYSIFF2006 micro–macro simulation model. Table 6 Long run labor supply reaction of couples (Transition matrices) Prediction 0-0 1 0-18 0-24 0-36 36-0 36-18 36-24 36-36 Total Choice 0-0 2.9 0.0 0.0 0.0 0.2 0.0 0.0 0.0 3.1 0-18 0.0 0.8 0.0 0.0 0.0 0.1 0.0 0.0 0.9 0-24 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.7 0-36 0.0 0.0 0.0 2.6 0.0 0.0 0.0 0.3 2.9 36-0 0.1 0.0 0.0 0.0 17.8 0.2 0.2 0.5 18.7 36-18 0.0 0.0 0.0 0.0 0.2 9.7 0.0 0.0 9.9 36-24 0.1 0.0 0.0 0.0 0.3 0.0 14.0 0.1 14.5 36-36 0.2 0.0 0.0 0.1 0.8 0.2 0.1 47.9 49.4 Total 3.3 0.8 0.7 2.7 19.3 10.2 14.4 48.7 100 Notes: 1. Within each possible combination of choices, the first figure refers to the man and the second to the woman. The transition matrix should be interpreted as follows. Each cell of the matrix reports the percentage of individuals that before the reform chose the work alternative corresponding to the “choice”line and after the reform choose the work alternative corresponding to the “prediction”column. Figures in the diagonal report the percentage of families that did not change behavior with the reform. Source: our simulations using SYSIFF2006 micro–macro simulation model. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 15 of 20 5.4 Macroeconomic adjustments By definition, an active welfare state policy has the objective of increasing the labor supply through economic incentives. As a result, not only families have more money to spend, but also, if the objective is achieved, there is a likely effect on the labor market. Moreover, a reform such as the RSA, as shown earlier, has relevant costs in terms of public budget. Thus macroeconomic adjustments are likely to happen. Table 9 presents the more relevant macroeconomic adjustments for the long run scenario. Perhaps the most relevant effect at the macro level is the 15.2% reduction in the involuntary unemployment rate, roughly 1.3 percentage points, which goes in the right direction according to the aims of the RSA reform. As a consequence, the total labor supply increases by 0.3%, which implies an increase by 0.2% of the real GPD. The increase in labor supply also implies a wage adjustment, with a reduction of 0.2%. Total capital in the economy are almost unchanged, with a slight increase in the remuneration of capital. Prices of goods are unchanged overall, although private consumption increases by 0.8%. Total investments see a relevant reduction (1.1%) due to a decrease in the saving rate by consumers (−4.6%). Finally, government expenditure increases by 0.2%, but thanks to the positive effect on the GDP, the deficit/GDP ratio decreases by 6.6%, going from 2.4% to 2.2%. Interestingly enough, on an ex-ante perspective, the positive macroeconomic effects that RSA has on the economy surpasses its cost for the government, allowing for an improved deficit/GDP ratio. 6 Conclusions This paper is the first systematic evaluation of the impact of the RSA reform on French economic system. After the experimentation in 2008 and the generalization of the Table 7 Poverty and inequality before and after the reform Scenario Headcount ratio Poverty gap ratio Gini coefficient D9/D1 Baseline 0.1397 (0.0034) 0.0372 (0.0013) 0.2949 (0.0035) 3.6628 (0.0482) Short run 0.1255 (0.0033) 0.0337 (0.0012) 0.2873 (0.0035) 3.5391 (0.0479) Long run 0.1241 (0.0033) 0.0333 (0.0012) 0.2871 (0.0035) 3.5266 (0.0476) Notes: Standard errors in parentheses. Poverty and inequality indices are computed on equivalized (OECD modified scales) disposable income. The poverty line is set at 60% of the median income of the baseline scenario. Source: our simulations using SYSIFF2006 micro–macro simulation model. Table 8 Percentage of winners, average percentage gain and percentage of losers and average loss Family type Winners Gain Losers Loss Net gain All families 18.7% 16.2% 29.0% −1.8% 2.5% Poor 20.9% 58.5% 8.7% −2.5% 12.0% Singles 17.7% 23.0% 38.5% −1.8% 3.4% Singles with children 70.6% 20.7% 18.2% −3.0% 14.1% Couples without children 17.8% 15.5% 32.3% −1.4% 2.3% Couples with 1 child 26.2% 17.0% 48.1% −1.5% 3.7% Couples with 2 children 25.6% 17.9% 51.3% −1.3% 3.9% Couples with 3 or more children 32.3% 13.0% 43.6% −1.5% 3.6% Notes: The table reports the percentage of winners, the average percentage gain, the percentage of losers, the average percentage loss and the overall percentage net gain for several family types. Source: our simulations using SYSIFF2006 micro–macro simulation model. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 16 of 20 measure to the entire population, the crisis has produced a significant and unexpected impact on the number of beneficiaries, which are now close to 5 million people. The possibility of evaluating both at the micro and macro level the effects of the reform can shed light on some issues: we use a micro–macro simulation model (SYSIFF2006) in order to simulate the monetary cost of the reform and its effects on labor supply, poverty and inequality, together with the corresponding macroeconomic adjustments, net of the great recession effects. According to our simulations, the RSA reform produces a long run reduction of poverty of almost 1.6 percentage points (from 14% to 12.4%), corresponding to about 400,000 families out of poverty. Figure 3 Probability density function of equivalized disposable income before and after the reform. The graph depicts the shift in the probability density function of equivalized disposable income for the French population before and after the RSA reform (long run scenario). To highlight the impact of the RSA reform the income distribution has been cut at €25,000 and a reference to the poverty line (about €8,100) have been included. Source: our simulations using SYSIFF2006 micro–macro simulation model. Table 9 Macroeconomic adjustments of the RSA reform % Variation 1 Real GDP 0.2 Involuntary unemployment rate −15.2 Labor 0.3 Capital 0.0 Real wage −0.2 Real rate of remuneration of capital 0.2 Consumer Price Index 0.0 Private consumption 0.8 Total investments −1.1 Government expenditure 0.2 Private saving rate −4.6 Public deficit/GDP −6.6 Notes: 1. % Variation can refer to the percentage variation of a quantity, as for example real GDP, or to the percentage variation of a rate or ratio, as the involuntary unemployment rate. Source: our simulations using SYSIFF2006 micro–macro simulation model. Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 17 of 20 By integrating the microsimulation model into a CGE model, we then simulate the short run and long run effect of the RSA reform on job opportunities of beneficiaries, finding only slight variations for couples (again, confirming Bargain and Vicard 2012) but a significant effect for singles, with 1.1% of total singles (about 7% of the nonworking) who exit unemployment/inactivity and find a stable full-time job. A quite interesting result is obtained in terms of macroeconomic implications in a scenario without economic crisis. If the RSA was working as a minimum income scheme in a pro-cycle phase, the overall effect in terms of GDP (+0.2%) would have produced a positive impact on the deficit/GDP ratio, therefore counterbalancing the effect of the increased public expenditure with a multiplier effect able to boost the aggregate demand. The macroeconomic context in which RSA has been implemented was extremely unfavorable, especially for the governmental goal of increasing efficiency of job-search activities. In this respect, any tentative ex-post evaluation is necessarily questionable because the scheme has been operating under extraordinary conditions which were not foreseeable. As our evaluation was performed ex-ante, we are able to evaluate the possible impact that RSA could have had if the great recession did not happen, and the results indicate an overall positive evaluation, which effectively combines a back to work strategy with social protection. Endnotes 1 http://www.pbo.gr/DesktopModules/EasyDNNNews/DocumentDownload.ashx? portalid=3&moduleid=5211&articleid=6015&documentid=3319. 2 http://ec.europa.eu/eurostat/statistics-explained/index.php/Unemployment_statistics. 3 http://ec.europa.eu/social/main.jsp?catId=102. 4 Projet de Loi généralisant le revenu de solidarité active et réformant les politiques d’insertion, n°7 Sénat Session Ordinaire de 2008–2009. 5 This is the position, for example, of Thomas Piketty: http://www.liberation.fr/economie/ 2009/11/13/le-rsa-contribue-a-favoriser-l-emiettement-du-travail_593459. 6 We use the OECD-modified equivalence scale: a weight of 1 is assigned to the household head, 0.5 to each further adult, and 0.3 to each child. List of Acronims and fiscal instruments Acronym (Full name (in French)): Short description RMI (Revenu minimum d’insertion): Minimum income before the reform RSA (Revenu de solidarité active: Minimum income after the reform (Prime de Retour à l’Emploi): Forfeit given to people that find a job and exit RMI API (Allocation Parent Isolé): Benefit for single women with children in charge PPE (Prime pour l’Emploi): Tax credit for low wage workers SMIC (Salaire minimum interprofessionnel de croissance): Minimum wage for fulltime workers (Pensions alimentaires): Transfers for families after a divorce or for people who live outside the fiscal unit (Prestations Familiales): Households’benefits AL (Allocation Logement): Housing benefits Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 18 of 20 PAJE (Prestation Accueil Jeunes Enfants): Set of benefits for families with more than 2 children APJE (Allocation Pour Jeunes Enfants): Set of family benefits substituted by PAJE in 2005 ARS (Allocation Rentrée Scolaire): Family benefit for families with children going to school (Prestations en nature): Transfers in kind (Indemnités journalières, maladie): Reimbursements provided by work contracts in case of accident (Assurance maladie): Health insurance (Assurance accidents du travail): Insurance scheme provided by employer for work accidents AES (Allocation Education Spéciale): Family benefit for children with disability RAP (Revenus Activités Professionnelles): Income from work (Revenus Nets Catégoriels): Net income from work (Allocation Chômage): Unemployment benefit AAH (Allocation aux adultes handicapés): Household’s benefit for invalid people AEEH (Allocation Education Enfants Handicapés): Household’s benefit for families with invalid children. Competing interests The IZA Journal of European Labor Studies is committed to the IZA Guiding Principles of Research Integrity. The authors declare that they have observed these principles. Acknowledgements The authors thank François Bourguignon, Riccardo Magnani, Lucia Mangiavacchi, Xisco Oliver and one anonymous referee for their useful comments, discussions and help. We thank for their useful comments the participants to the Lunch Seminars at the Paris School of Economics, to the First Microsimula conference “Microsimulation as a tool for the analysis of public policies: methods and applications”(Paris School of Economics), and to the 2nd General Conference of the International Microsimulation Association “Microsimulation: bridging data and policy”(Ottawa). The authors acknowledge financing to the French Government (CNRS, project n. BLAN06-2_139446). Luca Piccoli and Amedeo Spadaro acknowledge financing to the Spanish Government (Ministerio de Ciencia e Innovación, project n. 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J Hum Resour 30(1):63–88 Submit your manuscript to a journal and benefi t from: 7 Convenient online submission 7 Rigorous peer review 7 Immediate publication on acceptance 7 Open access: articles freely available online 7 High visibility within the fi eld 7 Retaining the copyright to your article Submit your next manuscript at 7 springeropen.com Canova et al. IZA Journal of European Labor Studies (2015) 4:17 Page 20 of 20