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Wage subsidies, work incentives, and the reform of the Austrian welfare system

  • Steiner, Viktor
  • Wakolbinger, Florian

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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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2010/19.

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Date of creation: 2010
Date of revision:
Handle: RePEc:zbw:fubsbe:201019
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  1. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers.
  2. Olivier Bargain & Marco Caliendo & Peter Haan & Kristian Orsini, 2010. "“Making work pay” in a rationed labor market," Journal of Population Economics, Springer, vol. 23(1), pages 323-351, January.
  3. Bingley, Paul & Walker, Ian, 1997. "The Labour Supply, Unemployment and Participation of Lone Mothers in In-Work Transfer Programmes," Economic Journal, Royal Economic Society, vol. 107(444), pages 1375-90, September.
  4. Hans-Werner Sinn & Christian Holzner & Wolfgang Meister & Wolfgang Ochel & Martin Werding, 2006. "Aktivierende Sozialhilfe 2006 - das Kombilohn-Modell des ifo Instituts," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 59(02), pages 06-27, 01.
  5. Viktor Steiner & Katharina Wrohlich & Peter Haan & Johannes Geyer, 2012. "Documentation of the Tax-Benefit Microsimulation Model STSM: Version 2012," Data Documentation 63, DIW Berlin, German Institute for Economic Research.
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