Ministry of Finance, The Treasury, Ljubljana JEL O40

Income transfers may generate work disincentives: if certain income payments are stopped when individuals (re)enter employment, this creates disincentives for taking em-ployment – so called “unemployment trap”. To make work pay, several countries have introduced policies – financial incentives – which enhance employment opportunities for marginal groups in the labor market. Such policies increase in-work incomes and so improve work incentives for those receiving only out-of-work incomes. This paper tries to shed light on two questions, first being how does “making work pay ” work in Slov-enia, compared OECD countries, and the second, should Slovenia introduce earnings supplements or other in-work arrangements in tackling possible unemployment trap. According to international comparison Slovenia does not “step-out”, when we look at net replacement rates. Slovenia, however, has not introduced a single active labor pro-grams that would stimulate directly and financially unemployed to join (official) em-ployment, even though a lower paid job. In the paper we suggest the implementation of some kind of in-work arrangement at least for those, who are potentially less stimu-lated to reemploy. Key words: economic policy, financial incentives to work, Slovenia, EU, OECD. * The autors would like to thank the anonymus reviewers, for their constructive advice and comments they helped the paper to achieve a better protiling