The dramatic rise in unemployment after 1990, particularly long-term unemployment, prompted the Australian Government to establish an expert committee to advise it on how best to respond to these developments. The release in 1994 of a White Paper on Employment and Growth foreshadowed a range of reforms in a number of areas. The expansion of labour market programs for the long-term unemployed was a central feature of the overall package, but so too were a number of significant reforms of the social security system. A major goal of these reforms is to provide a social security system more consistent with current labour market trends, and one which, whilst still heavily targeted, is designed to provide increased work incentives. This paper explains the nature of the social security reforms and analyses their impact, focusing on their consequences for incentives to increase participation in paid work.