Page 39 - IDEA Study 3 2018 Low skilled

8. Discussion of the Causes of Poor Performance of the Low- skilled and Policy Recommendations We have provided evidence on the characteristics, labor market conditions, and labor market outcomes of the low-skilled in the Czech Republic. Further, we have discussed factors that affect their position in the labor market and labor market performance. In this section, we review the reasons for the inactivity of the low-skilled who are not in the labor force, and the causes of unemployment and poor job characteristics of the low-skilled who are in the labor market. We also consider policies that could help the (re)integration of the low-skilled into the labor market, reduce their unemployment, and improve their job quality and career prospects. 8.1. Inactive Low-skilled There is a high share of the inactive among the low-skilled. If our aim is to increase the labor market participation of the low-skilled, we first have to address the low incentives to work that they face. As the non-working low-skilled have participation tax rates as high as 50%, half of their potential income would be lost in taxes paid or benefits lost if they started working. This is a substantial problem particularly in combination with the extra expenditures on food, travel, and sometimes also childcare that are connected to labor market participation. The Czech tax system has two features that make it especially unfavorable for low-skilled workers: high taxation of employment income and low progressivity of the tax system (Dušek, Kalíšková, and Münich 2013). To mobilize the low-skilled who are out of the labor market, we first need to decrease the participation tax rates they face. This could be achieved by decreasing the social security contribution rates of employees or employers (or both), as these contributions constitute the main part of the labor taxation of low- income individuals. On the other hand, decreasing the personal income tax rate for low- income individuals would not solve this problem as they usually do not pay income tax; their income is too low for their income tax to exceed the basic personal tax credit. Another potential solution is some form of working tax credit (negative income tax for low-income individuals). In the Czech Republic, there is a child bonus (negative income tax) for low- income individuals with dependent children. However, the child bonus is only for individuals with dependent children and thus does not solve the problem of young individuals, childless families, and the elderly. In addition, there is some evidence that the 37