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The Danish “kontanthjælp” – what determines the size?

In 2014, 3 billion euros of public funds was spent on the Danish social security transfer “kontanthjælp” to help secure 167.357 Danish citizens’ incomes! [1] The transfer is a public unemployment benefit for citizens who are not able to provide for themselves or their families and it is one of the pillars of the Danish welfare model, which aims at making sure that no one is being completely lost on the ground.

Even though most Danes agree in the existence of the transfer, the size of it and public resources spent is often being brought up for question. Especially in the light of the last fiscal crisis it was discussed if the transfer rates should be cut.

The arguments in favour of the transfers are that there should always be a security for everyone to be able to attain their most basic needs. Thus the purpose of “kontanthjælp” is to be a last resort to help you onto your feet again from whatever knocked you down no matter what background you come from. This also calls for transfers that are not too low.
One of the main arguments against the transfer is that it might not give incentive to work if it becomes too high. That some people will actively choose to be on benefits since it gives them the same enjoyment as being employed, which calls for transfers that are not too large.

According to different studies there might be an effect on labour supply of lowering the size of the transfer on the short sight but it is not very great and almost fades out in the long run. This was among others found in a report from SFI[2] (2005), i.e. a study from before the high unemployment rates. One of SFI’s explanations for the small effect was that a big share of the people on “kontanthjælp” has other issues than just the financial situation that prevents them for being ready for the job market. The issues can be of physical, psychological and social character or be the lack of qualifications or competences.[3] Thus only changing their economic situation does not necessarily make them more work ready.

So what should decide the right size this transfer? If the objective is to decrease the public expenditure, by lowering the transfer it will actually be achieved, since some people will be given the economic incentive to get a job thus not receiving the transfer and the ones who will still be on the transfer will be given less. If the intend instead is to decrease the number of people on the transfer with a great amount the research does not work in favour of that being achieved only by lowering the transfer. In the last case you will have to look at the number of people actually getting off the transfer against how much you value that the people who won’t be more job ready will end up having a lower income.

#2371

[1] Statistics Denmark

[2] the Danish national centre for social research

[3] http://www.information.dk/526335

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Author: studentnovasbe

Master student in Nova Sbe

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