Success in municipal employment schemes in Denmark

by Signe Hald Andersen, June 2006

Report available in Danish

Summary

In Denmark, the municipalities are responsible for helping e.g. recipients of sickness benefits or social assistance to move on to employment. This responsibility has been increased over the last decade and now encompasses more intensive and more tightly structured follow-up on the situation of the individual benefit recipient, including readiness for the labour market. This report aims, in part, to describe the extent to which Danish municipalities have succeeded in helping recipients of sickness benefits and social assistance to move from the benefit scheme to employment rather than other benefit schemes, and, in part, to analyse the extent of any variation among the municipalities. More specifically, the report aims to answer the following three questions:

To what extent do the respective proportions of recipients of sickness benefits and social assistance who move on to employment vary among the municipalities and why? How important are differences in the various municipalities' framework conditions and their efforts to help benefit recipients to move on to employment? A– And: if a municipality succeeds in helping more recipients of one particular type of benefit to move on to employment, does this have consequences for the municipality's success in helping more recipients of other benefits to move on to employment? The answers to these questions are central elements of this report as the intention of the law, as regards the municipalities' efforts to service the two groups of benefit recipients, is to get the recipients to move on to employment.
In continuation of question 1, the theory of whether the income transfer system follows the principle of communicating vessels is investigated, i.e. do municipalities that succeed in reducing the number of benefit recipients in one scheme end up with more recipients in other benefit schemes? This theory is investigated by examining whether municipalities with a particularly high number of people who move on from a term of social assistance or sickness benefits also have a particularly high number of people who move on to other benefit schemes.
How stable is the situation? Do benefit recipients who have moved on from the income transfer system return to the system, or do they obtain permanent employment? Furthermore, are municipalities that are generally good at helping benefit recipients to move on to employment also good at helping them to obtain permanent employment?

These questions are answered by analysing registry data from Statistics Denmark for the period 1999-2002 for recipients of sickness benefits and the period 1998-2002 for recipients of social assistance. The analyses are based on a 100 per cent sample, and we use the first registered sickness benefit or social assistance term for each observation (i.e. the first term registered in the reference period). These selection criteria give us 152,820 terms of sickness benefits and 254,189 terms of social assistance.

The following summary of the report is structured around the answers to these three questions.

Question 1: Variation among municipalities in the proportion of benefit recipients moving on to employment

The raw data show considerable variation among the municipalities in the proportion of recipients of social assistance and sickness benefits moving on to employment. As regards social assistance, the proportion varies from 14 per cent to 50 per cent, while the variation for sickness benefits is from 31 to 61 per cent.

One significant explanation for this substantial variation can be differences in the municipalities' different framework conditions. For example, it is relatively difficult to get women, immigrants and the poorly educated to move on to employment, and factors such as poor health and age also make it difficult. However, it is considerably easier to help those benefit recipients who have a previous connection with the labour market to move on to employment. The variation among the municipalities is also attributable to local labour-market conditions. For example, a high unemployment rate in a municipality reduces the probability of helping a benefit recipient to move on to employment. In other words, municipalities with many immigrants, poorly educated people, a high unemployment rate, etc. are disadvantaged as regards helping recipients of social assistance and sickness benefits to move on to employment.
Adjusting for these differences in framework conditions diminishes the differences by more than 60 per cent as regards sickness benefits and slightly less as regards social assistance. A large share of the observed differences between the municipalities can thus be attributed to varying framework conditions.

What are the reasons for the remaining variation (40 per cent) which cannot be attributed to varying framework conditions? Previous research under a narrower definition of the municipalities' employment responsibilities (i.e. employment of immigrants under the Danish Integration Act) suggests that the variation can be partly attributed to differences in the municipalities' employment initiatives. The use of certain types of activation measures may be a decisive factor, as might the organisation of the social services department and the interaction with other players in the municipalities, social worker types and high quality of individual action plans. Other decisive factors are the political and administrative prioritisation of efforts and the degree of specialisation of the social workers. This research also suggests that there are no universal solutions as to which type of effort is the most efficient, but that efforts should be differentiated according to the complexity of each municipality's task (cf. Heinesen et al. 2004; Boll Hansen et al. 2006).

Since the organisation of each municipality's departments contributes to the degree of success of the municipality's effort and thus the variation among the municipalities, the municipalities' efforts to service the two types of benefit recipients might be interconnected. The idea is that a municipality that efficiently services its recipients of social assistance also efficiently services recipients of sickness benefits since the difference lies in the organisation of the effort. However, the figures show no correlation between the municipalities' success in the two areas, not even after adjusting for differences in framework conditions. It would be interesting to investigate this further, but that is beyond the scope of this study.

Question 2: Limited support for the theory of communicating vessels

According to the theory of communicating vessels, a municipality's success in reducing the number of recipients of a certain type of benefit means that these people merely turn up in other public benefit schemes e.g. where the costs are lower. The theory boils down to the argument that success in one area does not necessarily mean success for the municipality as a whole or for the public system as a whole. In this project, the theory is tested by examining whether municipalities with a particularly large number of people who move on from sickness benefits or social assistance also have a large number of people who move on to other public benefit schemes.

Our analyses support the theory, albeit to a limited extent. A municipality with more people moving on from sickness benefits or social assistance tends to have more people moving on to other public benefit schemes. A comparison of the municipalities with the highest and lowest numbers of concluded terms of sickness benefits shows a difference of almost 10 per cent in the share of recipients of sickness benefits who move on to other municipal benefit schemes. Similarly, comparison of the shares of recipients moving on to central-government benefit schemes shows a difference of almost 5 per cent. The same trend is observed in the area of social assistance.

Question 3: What will happen in the longer term?

A large share of the recipients of sickness benefits and social assistance who move on from these schemes return to the schemes sooner or later. Many of them circulate between sickness benefits/social assistance and another state (i.e. employment, other public benefit schemes or a state »outside the labour force«).

Looking four states ahead from the first receipt of sickness benefits, almost one-fourth of the recipients of sickness benefits return to the scheme. And just under one-tenth move back and forth several times between sickness benefits and another state. Finally, one-fourth of the recipients of sickness benefits circulate between two different states in the long term. These patterns show no systematic differences between the 10 municipalities with the highest and lowest numbers of benefit recipients moving on to employment.

Just under one-third of the recipients of social assistance return to the scheme, and 4 per cent circulate between social assistance and other services. Finally, just over one-fourth circulate between two different states. These patterns show no significant differences between the municipalities with the highest and lowest numbers of benefit recipients moving on to employment.

However, while more recipients return to the benefit schemes, there is also a rather large group who, in the longer term, move on to employment after terms in two or more public benefit schemes. The analyses show that 43 per cent of the recipients of sickness benefits move on to employment immediately after the conclusion of their first sickness benefit term, while a further 14 per cent move on to employment in the longer term, i.e. in the second, third or fourth state after the first receipt of sickness benefits. This means that 57 per cent in total move on to employment in the short or long term. It also means that more than 40 per cent do no move on to employment at any time during the reference period. As regards social assistance, 11 per cent move on to employment in the longer term, bringing the total share of recipients of social assistance moving on to employment to 44 per cent. In contrast, more than half of the recipients of social assistance do no move on to employment at any time during the reference period.

The municipalities that are generally good at helping benefit recipients to move on to employment are also good at helping them to move on to employment in the longer term, i.e. securing a more permanent attachment to the labour market for the recipients.

Conclusion and perspective

Just over half of the recipients of sickness benefits and just under half of the recipients of social assistance move on to employment in the short or long term. Most of the other half continue in another public benefit scheme. There is a slight tendency for the municipalities with many concluded benefit terms to have a higher proportion of terms concluded by the recipients moving on to other public benefit schemes. Consequently, to a certain – albeit limited – extent, our analyses support the theory of communicating vessels. An effort to increase the proportion of benefit recipients who move on to employment in the short and long term appears to hold considerable potential. However, it is important to emphasise that there are far more questions than these analyses can provide answers to, such as:

Is it possible to avoid a relatively high number of recipients moving on to other public benefit schemes than social assistance or sickness benefits rather than employment?
Is it possible to reduce the waiting time for the recipients moving on to employment?

This report shows strong variation among the municipalities as regards the number of benefit recipients moving on to employment in (especially) the short term and the number of recipients who merely move on to other public benefit schemes. This is probably influenced by the municipality's effort. And the question is whether more inspiration can be gained from the municipalities that are best at helping benefit recipients to move on to employment. Thorough benchmarking analyses may be a good means of identifying the municipalities that can serve as 'role models' to the municipalities that have greater difficulties in helping recipients of sickness benefits and social assistance to move on to employment. In-depth studies in such municipalities may help to identify their strengths which can be a source of inspiration to other municipalities.

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