Do benefits make people want to work?

Generous welfare benefits make people want to work more, not less, according to researchers at Oslo and Akershus University College in Norway

Prime Minister of Norway, Erna Solberg. Norwegians pay the highest amount in benefits but have a low unemployment rate 

In tough economic times there is a tendency for compassion, especially for those in receipt of social benefits, to diminish somewhat. It is understandable, however, considering the way the topic is presented in the press, for those with a job to view those without with a level of contempt. In the UK for example, the Citizens Advice Bureau, an independent charity that provides information and advice to help people with money or legal problems, took the government to task over the way it chose to frame the welfare debate – portraying the employed as hard-working and those without a job as freeloaders.

“The picture that is painted is that all benefits claimants and recipients are those who are idle and not wanting to work, and wanting to play the system”, Gillian Guy, Chief Executive of Citizens Advice, tells The Guardian. “That’s not very helpful, particularly to the vast majority of people who are not wanting to claim benefits, seeing this as a safety net that they need to have recourse to, and wanting to get out of it as quickly as possible.

“We’ve challenged the government over whether they are presenting that kind of picture – the scroungers/strivers issue – and they recognise that it is not helpful and they have said to us they will seek not to do it. It paints a false picture”, adds Guy. “There is an implication that it is people’s own fault when they end up in a situation where they need support, and that’s not the experience we have. Actually it could happen to anyone of us.”

Fig 1

By framing welfare recipients in this way, it not only dehumanises the unemployed, but it also helps justify a reduction in welfare spending. Politicians defend budget cuts to social benefits by claiming that generous welfare systems create a dependency culture, and that by rolling back the state it will incentivise people to find work. But according to research conducted by sociologists Dr Kjetil van der Wel and Dr Knut Halvorsen from Oslo and Akershus University College in Norway, “generous welfare benefits make people more likely to want to work, not less”.

Dependency culture
It is important to mention that there is evidence to support the notion that generous welfare systems create a culture of dependency. But, as Kjetil A van der Wel explains, these studies have their limitations. “There are studies that have been able to identify what they call social interaction effects”, explains the Norwegian sociologist. “These describe a situation where an individuals’ chance of taking say long-term sick leave for instance, or even exiting the labour market completely, increases if someone in that person’s social network did the same.”

Put simply, if an individual’s neighbour or friend began receiving incapacity benefit, for example, then the likelihood of that individual to apply or attempt to get the same support noticeably increases. Human beings are social creatures, and so, it is not surprising that they are affected by the actions of their fellow man. The trouble with studies that use social interaction effects to support the notion that generosity promotes dependency is that they tend to focus solely on benefit behaviour.

“There are also social interaction effects in many other types of behaviour; ones we would very much like people to engage in such as taking up employment”, he explains. “In the last 30 or 40 years we had a women’s revolution in the labour market and massive social interaction effects took place to make that happen.”

“None of these studies investigated whether welfare dependency or social interaction effects are stronger in a context where benefits are more generous, so we do not know whether these effects are stronger in more generous welfare states or in less generous ones”, contends van der Wel.

In fact, in Scandinavian countries, where for the last 40 years they have provided citizens with a very substantial level of social benefits, if these studies were correct, then it should be possible to see employment levels fall as a result of these social interaction effects and a dependency culture flourish. But in Halvorsen and van der Wel’s work, The bigger the worse? A comparative study of the welfare state and employment commitment, they found the opposite to be true.

In their research, they examined responses from 19,000 people in 18 European countries to the statement: “I would enjoy having a paid job even if I did not need the money”. The researchers found that the more a country paid to the unemployed or sick, and invested in employment schemes and other labour market policies, the more likely people were to agree with the statement, regardless of whether they were employed or not.

The researchers found that almost 80 percent of people in Norway, a country that pays the highest amount in benefits of all the other countries surveyed, agreed with the statement. And by comparison, Estonia, one of least generous, only around 40 percent did. While the UK, which provides a moderate amount in social benefits, saw almost 60 percent agreeing with the statement. They also noticed that those governments’ that are most willing to intervene in the labour market through active spending on labour market policies that help the unemployed find work, made people more likely to agree that they would work even if they didn’t need the money.

“A basic assumption is that if individuals can obtain sufficient levels of well-being – economic, social and psychological – from living off public benefits, compared to being employed, they would prefer the former”, the researchers say in the paper.

“[However], this article concludes that there are few signs that groups with traditionally weaker bonds to the labour market are less motivated to work if they live in generous and activating welfare states”, continues the researchers. “The notion that big welfare states are associated with widespread cultures of dependency, or other adverse consequences of poor short-term incentives to work, receives little support. On the contrary, employment commitment was much higher in all the studied groups in bigger welfare states.”

Relatively generous unemployment benefits, when combined with government money spent on active labour market policies, can also provide a number of auxiliary economic returns. For starters, they give people more time and security. Time that can be spent participating in skills training or education that allow people to become more compatible with the demands of the ever-evolving labour market.

It also provides people with a level of security, so they don’t have to rush into the first job offer they get simply out of desperation for money. This is crucial, because it is actually very costly to have individuals coming in and out of the welfare system every couple of months. So if people can find a job that suits them then the employer, employee and the state will all be better off.

Psychosomatic ideas
Despite all this, scepticism still remains. The reason for the doubters, however, might be more to do with how attractive the dependency culture narrative is, rather than how compelling any of the evidence out there to support it. “This story of how generous welfare and the mind works is a very catchy one”, speculates van der Wel. “There is also a class perspective here, because the middle and upper classes can place themselves on a moral high ground so to speak at the expense of welfare recipients, who are portrayed as either cynical free riders, lacking in proper self control or even moral fibre.”

“And this is very peculiar because in Norway for instance, the amount of tax money lost each year because of tax fraud, which is an activity conducted predominantly by the upper and middle classes, is around 20 times greater than the amount lost to benefit fraud”, he continues. ‘Yet, the first makes no one angry, while benefit fraud is constantly debated in the media.”

But this peculiarity is not limited to Norway. In fact, according to HMRC figures for 2012 to 2013, £1.2bn of benefit spending is lost to fraud (see Fig. 1), while £4.1bn is lost through tax evasion. The story is much the same throughout Europe. So it appears that when research is not unanimous and all signs do not point to one clear solution, a strong narrative trumps all.

Hence when individuals like the distinguished professor of economics, Peter H Lindert tell the world “social spending often has a positive effect on GDP, even after weighing the effects of the taxes that financed that spending”, it often falls on deaf ears.

And when the social welfare policy expert, Irwin Garfinkel, explains how “by enhancing human capital and economic security of the entire population, welfare state programmes in rich nations have achieved greater equality, and greater efficiency, productivity and economic growth”, many countries still choose to make massive spending cuts to the welfare budget.

It is simply easier to tell the tale of how recipients of social benefits are lazy, unproductive, unmotivated scroungers than it is to portray the complexities that lead to people becoming unemployed, and how social benefits, coupled with active labour market policies can help them get back to work and stay there. This is particular true during economic downturns.

So if advocates of greater welfare spending want to be heard, perhaps it is time they stop looking for more evidence to support their claim, which there is already an abundance of, and instead, focus on finding a way to turn that research into a more compelling story that people, the media and politicians can get behind.