Instead of creating jobs, in-work benefits combined with a minimum wage would merely give firms an incentive to cut pay to the minimum.

ECONOMIST: Labour��s wage policy

Supporters of the idea, which could link benefits to local housing costs, say it would give more incentive for people in low wage areas to get a job.

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But it would do so by removing the incentive to provide the low-wage jobs that the benefits were meant to encourage.

ECONOMIST: Labour��s wage policy

Single, low-skilled men therefore face a lower effective real wage than low-skilled women with children and have less incentive to work.

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The hitch is that, once this credit is in place, companies would have little incentive to offer health insurance to their low-wage workers.

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But paying in-work benefits also creates an incentive for firms to cut wages, as the state's wage top-up will ensure their workers are no worse off.

ECONOMIST: Labour��s wage policy