Are Benefit Reductions an Effective Activation Strategy?

This blog is based on an article in the Journal of Social Policy.  Click here to access the article.

Social policies are being systematically dismantled in contemporary welfare states, while labour market policies are taking over as the preferred type of welfare regulation. Thus we have seen increases in legislation as a consequence of the dynamics on the labour market. Paradoxically, this has led to higher poverty prevalence as well as deeper poverty, even in Scandinavian welfare states.

The paradox can be “explained” by the current trend for promoting policies aimed at increasing work incentives, which often includes reducing benefits. This is based on the ideological belief that there is a trade-off between work incentives and social security. Our study investigates this social policy experiment with people’s welfare in one of the most universal welfare states: Denmark. A panel dataset covering 2009-2010 for the lowest benefit recipients is used to examine how benefit reductions affect recipients. The focus is both on their job situation (work incentives) and on their socio-economic and health situation (social security). Specifically, we have analysed whether recipients’ became more discouraged and whether they increased their job search activity amid the reduction in benefits.

We found that recipients who intensified their job search and did not become discouraged had the highest rate of employment, while discouraged benefit recipients who did not intensify their job search had the lowest job rate.

We also found that the most significant difference between the recipients of benefits and the employed was poor health, and that the healthy recipients of the lowest benefits were much more successful in getting a job. The recipients of the lowest benefits suffered serious deprivations more frequently than others, which could be counter-productive when searching for a job. The recipients of the lowest benefits who felt that they were employable were able to successfully find a job much more frequently than the recipients who did not believe they could manage a normal job. Recipients who were always or mostly able to engage in desired activities were more successful in getting or keeping a job.

Our analysis shows that the people who searched for jobs more intensively after the reduction of benefits gained employment more frequently, and both employability and self-efficacy were strongly correlated with having a job. This indicates that employability and self-efficacy in combination with incentives and attitudes toward the reduction in benefits could explain success in getting a job.

The results illustrate that the impact of incentives strongly depends on the recipients’ motivation and spirits when they are hit by the reductions in benefits. The statistical analyses’ explanation for this is that health is an underlying variable that also explains the absence of being discouraged as well as self-efficacy, employability, intensified job search and ultimately getting a job. Our analysis further supports the hypothesis that good health is an underlying factor and often a condition for getting a job.

The results have implications for both social policy and social work. For social policy, this result implies that it is important that individuals with poor or very poor health should be granted early retirement pensions. These people cannot react adequately to work incentives such as benefit reductions targeted at making job search efforts more attractive. Instead, the reductions and the subsequent deprivations only make benefit recipients more discouraged. Adjustments of social assistance levels are only effective for people with a good or at least a reasonable health condition. Thus, social work vis-a-vis people with poor health should mainly aim at ensuring security and generally higher quality of life rather than more stress, discomfort and lower income associated with ineffective benefit reductions.

The present ongoing covid-19 pandemic, with lockdowns and social distancing, have had negative consequences for the economy. Many countries have taken measures to mitigate the negative effects, including changes in social security and labour regulations as well as relaxing legislation to increase enterprise liquidity. Governments, including the Danish one, is also relaxing the conditions for the unemployed such that they do not risk losing their unemployment benefits in the foreseeable future.

In general, public support to maintain social cohesion and stability as well as preparedness for reopening of the economy underlines the importance of an active government that not only looks at the needs of the labour market, but also is aware of the needs of social security in modern welfare states. Thus, although social policy experimentation has been going on with people’s lives, there is hope that the Danish Flexicurity Model will again see a better balance between flexible labour markets and social security for individuals and families alike.

About the authors

M. Azhar Hussain is Associate Professor at Roskilde University.

Morten Erjnæs is Emeritus Professor at Aalborg University.

Jørgen Elm Larsen is Associate Professor at the University of Copenhagen.




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