Research Project on Reforming Transfer Withdrawal Rates and Improving Incentives to Work Research project on reforming transfer withdrawal rates and improving incentives to work

Question and objectives of the project

The federal government wants to change the employment allowances for recipients of basic social security benefits in such a way as to strengthen labor supply incentives and avoid the sometimes very high effective marginal burdens that exist in the status quo. With the new citizen's income, the allowances in the range of 521 and 1,000 euros of monthly earned income are to be increased, resulting in additional earnings of 30 percent instead of 20 percent. In addition, higher earned income allowances are planned for younger people. Within the framework of this research project, cornerstones for a possible further reform of the employment allowances are to be developed. In this context, not only changes in the transfer deduction rates in the citizen's income are to be considered, but also the entire system of basic of mini-jobs and the transition area from benefit receipt to non-benefit receipt.

Methodical approach

The research project consists of two interrelated parts:

1. analysis of employment incentives in the current social security system. The analysis primarily documents constellations in which labor force potential is not exploited due to a lack of incentives - for example, the living and income situation of different types of households, but also the importance of individual work disabilities or labor demand in terms of qualifications and work experience. The analysis serves to evaluate the status quo with the aim of identifying possible reform needs.
2. development of key points for a reform proposal of the employment allowance in the citizen's income and other social benefits. Reform options will be developed taking into account the main objectives (improving the financial position of working recipients of basic benefits; strengthening incentives to work; avoiding effective marginal tax burdens above 100 percent; increasing employment subject to social security contributions) and secondary objectives (no deterioration in labor market participation and the level of employment; better equality for women, single parents and persons with particular disabilities; efficiency in the sense of the most favorable benefit-cost ratio possible; high transparency, easy comprehensibility and administrative simplicity; high social acceptance).