December 8th, 2011

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If you are interested in the debate over inequality and whether it can pay to go to work, last week was a good week thanks to Özlem Cekic (Socialistisk Folkeparti).  Seeking to give us an insight into poverty in Denmark, Özlem introduced us to benefits recipient ‘Carina’ and her monthly budget. According to Carina’s budget, she receives over 15,000 kroner a month in public assistance – or about 190,000 kroner a year. Each year, Özlem’s example, a single mother, can afford to spend 6,000 kroner on cigarettes, pay off 7,000 kroner on her loans, spend 6,000 kroner on telephone fees, as well as other expenses, such as having a pet. After paying for all that, and an above average monthly rent of 7,400 kroner, she has 5,000 kroner a month to live on. This is not poverty – far from it. But it is, quite possibly, a reason to remain on benefits instead of finding a job.

In Denmark, we have trouble giving people a reason to find a job. Just this week, the employment minister, Mette Frederiksen (Socialdemokraterne), released a report documenting that 3.2 percent of the labour force – 74,000 people – earns just 1,000 kroner more than they would if they were on public assistance. That’s less than 50 kroner per working day.

I believe that the reason why people have reacted so strongly to Özlem’s example is because it is antithetical to Danes’ work instinct. And this instinct tells us that it should always pay to go to work. Denmark offers high levels of public assistance, and in some cases that makes it worthwhile to remain out of work. When the cost of working – such as transport – is figured in, there is often little or no economic benefit to working. And while Carina is living proof of this, Employment Ministry data show that if you and your spouse are both on benefits, and one of you has to find a job, that job needs to pay 30,000 a month if the couple’s total disposable income is to rise by a minimum of 500 kroner.

The benefit of finding a typical unskilled job earning 18,000 kroner a month would be minimal. That’s unhealthy, and it is why the Venstre-Konservative government capped benefit levels in order to give recipients more incentive to find a job. In its proposed budget, the Thorning-Schmidt government would eliminate the cap on benefits, as well as a programme of reduced benefits for new immigrants and a regulation requiring benefit recipients and their spouses each to work 225 hours during a 12-month period in order to qualify for benefits. According to the Finance Ministry, the changes will result in between 2,000 and 3,000 people permanently leaving the work force to instead survive on public assistance, since it would be more attractive to be on benefits.

I urge the Thorning-Schmidt government to reinstate the cap on benefit payments, the reduced benefits for immigrants and the 225-hour requirement. Meanwhile, the government should also pass a reform of the entire benefit system in order to ensure that people moving from public assistance to a typical, low-wage, unskilled position gain at least 2,000 kroner a month. That averages out to 100 kroner a day after tax, certainly not a lot of money but hopefully that’s at least some kind of incentive to take a job – and to keep the Danish work ethic intact.

The author is the vice president and chief economist of the Center for Political Studies (Cepos), an independent think tank promoting a society based on freedom, responsibility, private initiative and limited government.