DOES WELFARE DISCOURAGE WORK

Does Welfare discourage work? If you ask the majority of economists and politicians around the world, the answer is yes. As a result most countries only reluctantly agree to welfare programs, and usually fight any moves to increase welfare benefits. They have a point, but a responsible government (I hear the laughter) has an electoral and moral responsibility to protect and support its citizens. The dichotomy of these two processes haunts most western countries.

     I doubt that any government instituting a welfare program imagined it to be a permanent status for the recipients. Unfortunately, they failed to design these programs with sufficient requirements, and penalties, to discourage permanent dependency. At the design stage, it was either thought unnecessary, or the designers were blinded by their own naiveté concerning human nature.

     If the opportunity exists, people will take advantage. It’s not their fault, it’s the fault of the program designers.

     The question then becomes, is it possible to design a welfare system that provides an equitable, but temporary, safety net that includes a required exit route that can’t be abused. Denmark has developed a system that is working.

     Danish welfare benefits are worth more than 80% of the recipient’s previous earnings. This is compared to 60% across the rich world, less than 50% in the U.K., and far less in the U.S. If the recipient in Denmark has children, the benefits are close to 100% of previous earnings.

     Critics would expect such a program to produce a wealth of freckless dependents. It hasn’t happened. Does welfare discourage work? Denmark has shown this can be wrong.

     Employers have almost no restrictions on hiring or firing employees and yet, peoples’ incomes are stable: Denmark has one of the best functioning labor markets in the world.

     The answer to this conundrum is that the regulations make it hard to live off welfare. Recipients must submit a CV to a coach within two weeks of being unemployed, and they can be struck off the welfare rolls if they do not try hard enough to find a job, or enrol in adult education programs. In addition, Denmark spends far more than most countries on making people more employable. The combination has worked.

     However, it does come at a cost. The program requires a massive investment in training, monitoring, and enforcement of the rules for those out-of-work. Denmark likes to think of it as spending money to avoid wasting it.

     I don’t think anyone considers having a significant percentage of the population permanently on welfare is good for the economy, the dependents themselves, or the productive use of man/woman power.

     Denmark has shown that it’s possible to provide an equitable welfare safety net, while protecting that system from permanent abusers, who could contribute to the economy. It also removes the stigma of welfare so that individuals can develop more self-respect and therefore be more willing to contribute. An interesting lesson for other countries that struggle with the concept of welfare.