3.11 Current debates and reforms
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Long-term consequences of COVID-19
The COVID-19 pandemic is expected to impact the labour market. However, the specific and long-term consequences remain to be seen.
Level of public benefits
In 2016, the parliament passed a cap on the amount of cash benefit given. The cap on benefits was part of the government’s labour market initiative with the objective of increasing the economic incentive to work by reducing the public benefits. The cap was approved by a small majority of 51 (Danish People’s Party, Venstre, Liberal Alliance, and the Conservative People’s Party) against 49 (the Social Democratic Party, the Red-Green Alliance, the Danish Social-Liberal Party, the Alternative, and the Socialist People’s Party).
The reduction of benefits gave rise to criticism from left-wing parties and a range of NGOs and social partners. According to opponents of the cap, there was no evidence that the cap would increase the incentive to work. They emphasised that the cap would have a negative impact on some people on cash benefits, especially families with children and marginalised people.
On the other hand, the Confederation of Danish Employers and the liberal, free-market think tank CEPOS approved the initiative to increase the workforce by increasing the economic gain from paid employment as opposed to public benefits.
Furthermore, in 2018, the former government and Danish People’s Party approved a reduction of the integration benefit as part of the 2019 national budget. The Social Democratic Party disapproved of the reduction of the integration benefit. The implementation of the reduction of the benefit was scheduled to be 1 January 2020.
In the 2019 general election, poverty – and especially child poverty – was an issue. In the government’s paper of understanding, the new government has declared a reform of the benefits system and cancelled the reduction of the integration benefit.
As of June 2019, a new government took office. In the paper of understanding ‘A fair direction for Denmark’ (Retfærdig retning for Denmark), the government and its supporting parties present the political foundation for the government. In the paper, several labour market initiatives are mentioned:
As an overall objective, ‘a new Government shall pursue an economic policy which strengthens employment and fights poverty and inequality, invests in education and upskilling and ensures a good framework for Danish businesses. It must ensure that four years from now the state finances are in better shape, while at the same time ensuring that inequality levels have been reduced’ (p. 12).
A new government will ensure that more people contribute to the labour market. Among other things, ‘more of the 50,000 young people who are neither studying nor working need to be activated’ (p. 13).
Reform of the cash benefit system
The government has allocated a benefits commission to propose recommendations on how to reform the Danish benefit system. These recommendations will serve to alleviate problems related to child poverty and to increase labour market participation and a simplification of the benefits system. The recommendations must also specify a replacement for the unemployment assistance limit so that it can be discontinued without allowing for the possibility of receiving unlimited public benefits. Until the commission has presented its recommendations, affected families with children will be offered a temporary child benefit. The temporary cash benefit will cease when a future benefits system is implemented
Due to COVID-19 pandemic, the recommendations of the benefits commission were postponed until May 2021.
The commission recommends that a new cash benefit system be built and that there should only be two different rates: a basic rate and an increased rate. Providers will also receive a fixed child allowance regardless of the number of children. The proposed model means that there is no longer a need for a cap on the total amount of cash benefits a citizen can receive. At the same time, the commission is proposing to abolish the 225-hour rule and to simplify the cash assistance system to create a system that is more transparent for both citizens and caseworkers. Instead, the commission recommends a model based on clear economic incentives.
In addition to the temporary child benefit, the former government’s planned changes to the unemployment assistance system will be discontinued until the commission has presented its recommendations. This means a cancellation of the approved reduction to integration benefits as per 1 January 2020, which has also been included in the earmarked financing.
Evaluation of the model for adjustment of student intake in Denmark
As part of the tripartite agreement in May 2020, it was agreed that the existing model of adjustment of VET-student intake will be evaluated in 2021. The evaluation will form the basis of a new model of adjustment.
Sub-agreement on rethinking of the employment efforts
As of June 2021, the government passed a new agreement that eases process requirements in the efforts for young cash benefit recipients, which allows a more flexible and individually adapted effort to be provided. At the same time, the agreement ensures that young people receive better rights and support in connection with their transition to education if they are at risk of dropping out. In addition to the agreement is a new opportunity to hold digital interviews by telephone or via video after six months of unemployment.