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Social assistance and inactivity traps have long been considered as one of the main causes of the poor employment performance of EU countries. The success of New Labour in the UK has triggered a growing interests in instruments capable of combining the promotion of responsibility and self-sufficiency with solidarity with less skilled workers. Making-work-pay (MWP) policies, consisting of transfers to households with low earning capacity, have quickly emerged as the most politically acceptable instruments in tax-benefit reforms of many Anglo-Saxon countries. This chapter explores the impact of introducing the British Working Families’ Tax Credit (WFTC) in three EU countries with rather different labor market and welfare institutions: Finland, France and Germany. Simulating the reform reveals that, while first-round effects on income distribution is considerable, the interaction of the new instrument with the structural characteristics of the economy and the population may lead to counterproductive second round effects (i.e. changes in economic behavior). The implementation of the reform, in this case, could only be justified if the social inclusion (i.e. transition into activity) of some specific household types (singles and single mothers) is valued more than a rise in the employment per se.

Individual strategic weight plays an important role in the intra-household allocation of resources; however, empirical studies invariably find such weight difficult to define in a plausible and computable way, given the available data. This paper proposes a framework for the calculation of household members’ strategic weight that can be easily computed using a microsimulation model. The index proposed for each member as the share of resources the household would lose should he or she abandon it. The causes of strategic weight differentials are analysed in four EU countries with significantly different employment structure and tax-benefit systems (Finland, Germany, Italy and the United Kingdom), using EUROMOD, an integrated EU-15 microsimulation model.

This volume initiates a new collaboration between Research in Labor Economics (RLE) published by Elsevier Press and the Institute for the Study of Labor (IZA). Beginning 2006, the RLE series extends to two volumes per year. One volume will remain in the tradition of the series, consisting of empirical and theoretical contributions in labor economics, while the other volume will focus on specific policy questions. IZA has become one of the largest organizations of labor scholars worldwide while RLE is now a well-established publication containing labor economics research. We hope this new association will be a meaningful development for both IZA fellows and RLE readers.

For equity, societies may wish to eliminate certain forms or manifestations of inequality. Horizontal equity and vertical equity in the income tax are topics which have interested me for some years. Although any shortfall from each of these objectives can be measured in terms of unwanted inequalities, equity per se is a different concept from equality. Equity relates to fairness, justice and other societal norms which give expression to the best aspirations of our collective social conscience. For example, equal access to health care for those in equal need is an accepted norm for horizontal equity in the health field. Vertical equity in this context means treating appropriately differently those who have different needs. When offered the opportunity to be Guest Editor of this volume of Research on Economic Inequality, I decided to define the focus simply as “equity”, without placing any further restriction on topics. The papers which were ultimately included in this volume are the ones, from among those offered, which survived a rigorous refereeing process. Each has its own “take” on the concept of equity, and its link with equality. I hope that you, the reader, will gain from reading all of these contributions and pondering their significance.