Trapped in inactivity? Social assistance and labour supply in Austria

Abstract

Financial incentives affect the labour supply decisions of households. However, the impact usually varies significantly across household types. Whilst there is a substantial amount of literature on the labour supply effects of tax reforms and in-work benefits, the impact of changes in social assistance benefits has received less attention. This paper analyses labour supply responses to changes in social assistance. We show that labour supply elasticities vary substantially across gender and household type. Women exhibit higher labour supply elasticities, both on the intensive and the extensive margins. Additionally, labour supply elasticities are typically higher for singles and for households with children. Using these results, we analyse the impact of the Austrian reform proposal “Neue Sozialhilfe” (New Social Assistance), which was introduced in 2019 and substantially cut social assistance benefits for migrants and families with children. The overall effects of the reform are especially strong for men and migrants. Migrants and couples with children, that is, the groups hardest hit by the reform’s social assistance reductions, show the strongest labour supply reactions to the New Social Assistance. Furthermore, we show that overall, the reform is expected to have a positive, but small, effect on the intensive margin of labour supply.

Hypothetical Tax-Benefit Reforms in Hungary: Shifting from Tax Relief to Cash Transfers for Family Support

“…(e.g.,Blundell et al (2000);Brewer et al (2006);Christl and De Poli (2021);Christl et al (2022) 4 Please note that we treat couple households with a non-flexible partner as a single household in the utility function5 Please note that for singles, there is only a one-hour term denoting the discrete choice set of this individual…”

Special issue: Evidence based policy making—selected papers of the 2020 Annual Meeting of the Austrian Economic Association

“…The paper by Christl and de Poli (2021) studies the labor supply effects of changes in social assistance payments using EUROMOD, a tax-benefit microsimulation model for the member states of the EU. Over the last years, EUROMOD has become one of the main tools for ex-ante economic analyses of labor market and social policy reform proposals within the EU.…”