Wage Subsidies, Work Incentives, and the Reform of the Austrian Welfare System
Zentrum Fuer Europaeische Wirtschaftsforschung (ZEW) - Center for European Economic Research; Institute for the Study of Labor (IZA)
University of Innsbruck - Department of Public Economics
IZA Discussion Paper No. 5191
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.
Number of Pages in PDF File: 26
Keywords: work incentives, labor supply, social safety system, microsimulation
JEL Classification: H31, I38, J22working papers series
Date posted: September 27, 2010
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