Taking the poverty line defined as 50% of the median income we find that the RMIG has a slight impact on the poverty rate.
Those figures imply that the RMIG Program could have a very positive effect in reducing situations of extreme poverty.
The RMIG and the Incentive Effects on Labour Supply
The previous quantitative analysis on the implementation of the RMIG assumed the program would not have a significant effect on economic behaviour.
Ideally, the simulation of the changes of behaviour generated by the RMIG should be made relying on a structural econometric model of labour supply.
The methodology also assumes that there is no rationing of labour supply on the demand side of the labour market and that the RMIG does not modify the productivity of the potential workers.
The percentage change in the net wage rate due to RMIG is:
The analysis maintains the assumption that participation in the RMIG does not affect the gross wage rate in any way, implying that the percentage change in total earnings is the same as in hours worked.
The handling given to these incomes in the modelling was to include them as exogenous income relevant to determine the variation in labour supply but obviously, not to include them in the computation of the RMIG for each family unit.
It is obvious that households with initial total incomes below the RMIG threshold are eligible to participate.
Hausman (1980, 1985) and others have shown that programs with a transfer/benefit structure of the kind found in the RMIG generate a nonconvex budget restriction.
The static participation case corresponds to assuming that the RMIG does not have any effect on endogenous participation, i.