Institutional moral hazard in the multi-tiered regulation of unemployment in Denmark


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1 Institutional moral hazard in the multi-tiered regulation of unemployment Denmark – Background paper Chris Luigjes & Frank Vandenbroucke December 2015 This document reflects views only authors and European Commission cannot be held responsible for any use that may made information contained therein Please refer to this as follows: C F (2015) support ‘Institutional Moral Hazard Multi-tiered Regulation Unemployment Social Assistance Benefits Activation – A summary eight country case studies’ Abstract has been written preparation a research project funded by (on Feasibility Added Value Benefit Scheme contract VC/2015/0006) adds detailed analysis following deliverable project: studies; but it was not We concept ‘institutional hazard’ analyse intergovernmental relations within welfare states specifically domain unemployment-related benefits related activation policies (the ‘regulation unemployment’) is one separate studies focuses on There are two principal actors Danish unemployment: central government municipalities insurance funds regional governments have less important role Concern institutional led several reforms municipal system resulting increasingly monitoring complicated financing method The trade-off between complexity controls need local flexibility source ongoing reform efforts Keywords: hazard; states; relations; insurance; social assistance; Active Labour Market Policies; activation; policy; 2 Denmark1 thank Bodil Damgaard Thomas Bredgaard Michael Rosholm very useful exchanges These councils tripartite institutions which public authorities partners meet discuss both implementation thereof were introduced other levels well cf infra 3 employment regions distinct from labour market councils; they act transmission level Cf their precise List Abbreviations PES Public Employment Services SA UI Insurance Introduction can characterised fully municipalised decentralisation Due combination large fact still bears substantial part budgetary impact assistance (SA) (UI) extensive experience with performance management Furthermore undergone many changes unemployment; since most these reactions what seen relevant subject at hand Contrary cases examined study federation However multi-layered four play key role: All had some point or another major design implementing Historically benefit regime centralised responsibility included includes extent trade unions administered (co-)financed (Arbejdsløshedskassen) disbursed delivered services insured unemployed It regulated scheme monitored while charge administration Reforms 1994 reshuffled responsibilities altered size even new player: Currently (co-)finances schemes finances regions3 sets out broad targets set up reimbursement model through influences behaviour become all administer link although formal shrinking also lost reshuffling Landmark include 2007 resizing introduction jobcentres They 2009 complete municipalisation became beneficiaries implemented co-financed contingent being line developments accompanied every representatives could monitor share undergoing again aimed changing 4 replacement rates historically among highest Europe currently remain same 90% say there (generosity of) remains politically controversial duration From until 2003 succession shortened eligibility period seven years;5 2011 further reduced maximum years three-year One year enough requalify entire under fire because short(ened) combined means-tested results individuals who ‘fall out’ system: people exhaust claim suffer great loss income when do qualify In 2014 special commission Dagpenge Kommissionen) created address issues recently published findings now considered 6 Shortening consequences sense earlier strategy (see section UI) Capped DKK 815 per day 5 Not change first mandatory; ended ‘passive period’ altogether (Andersen Svarer p 12) An interesting proposal greater incentives take work Working short spells will either extend create record Related proposes couple ‘break’ days during would excluded payments (Dagpengekommissionen 2015) scores higher criteria average study; strictness relates mostly availability requirements sanctions repeat offenders Figure Error! Reference found ) strict likely high strong focus crucial its flexicurity Overall Source: Langenbucher 27 involvement Trade manage disburse Workers must apply fund choice initiate coverage Thus contrast (with exception Switzerland) directly controlled (agency) Yet formally approved 7 form Ministers Pensions oversees conduct 8 legislation Act governing 9 sensu stricto contrary Swiss (and affiliated unions) an (implementation) Their throughout successive concern described sections For suffices least See chapter chapters 14-15 Other acts Organisation Support Efforts deals different governance Measures predominantly Strictness financed three sources: contributions (paid members funds) used finance costs 10 After weeks municipality starts contribute 50% 100% cost individual care Table 1) 11 initial four-week government’s 12 (76-78) reforming adjustment contribution more discussion 0 Average cases7 Municipal after Chapter (82 a) Default 70% clients participating (Chapters Measures) job/activation offer (Chapter 16 started time five six

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