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