Discussion paper / School of Business & Economics ; 2010/19 : Economics
work incentives; labor supply; social safety system; microsimulation
336 Public finance
We analyze the labor supply and income effects of a needs-based minimum benefit
system (“Bedarfsorientierte Mindestsicherung”) to be introduced in Austria by the end of
this/beginning of next year. The aim of this reform is to reduce poverty as well as increasing
employment rates of recipients of social assistance. On the basis of a behavioral microsimulation
model we show that this new system will slightly increase incomes for the poorest
households and slightly reduce labor supply due to the generous allowances for marginal employment
under the current and the planned regulations of unemployment assistance. As an
alternative, we analyze a reform proposal which reduces financial incentives for marginal
employment not covered by social security, and rewards working longer hours by a wage subsidy.
Although this alternative reform would yield modest positive labor supply effects, a
relatively large number of households would suffer income losses.
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