Abstract
Abstract The paper argues that a comprehensive activation strategy is called for – in both unemployment and disability insurance – to minimize the conflict between income insurance and work incentives and to prevent the economic crisis from causing a long-lasting decline in labor force participation. A review of recent empirical evidence, particularly from the Scandinavian countries, indicates that “mild” activation requirements effectively counteract moral hazard problems in social insurance. The paper also argues that the distinction between unemployment and disability is blurred, and that both temporary and permanent disability insurance programs should be designed to encourage and support the use of remaining (partial) work capacity.
Highlights
At some level, there is probably an inescapable tradeoff between the aims of equality and social security, on the one hand, and efficient incentives for self-sufficiency, on the other
The strategy is founded on three presumptions; i) that work is normally a healthy activity, even for workers with disabilities, ii) that long periods of inactivity tend to become self-enforcing and make it progressively more difficult to return to employment, and iii) that pressure to exploit the remaining work-capacity reduces moral hazard problems with respect to both employer and employee behavior
For unemployment insurance and social assistance programs, policy makers in many countries have to an increasing extent resorted to various activation strategies, essentially requiring benefit claimants to participate in temporary employment or training programs
Summary
There is probably an inescapable tradeoff between the aims of equality and social security, on the one hand, and efficient incentives for self-sufficiency, on the other. The strategy is founded on three presumptions; i) that work is normally a healthy activity, even for workers with disabilities, ii) that long periods of inactivity tend to become self-enforcing and make it progressively more difficult to return to employment, and iii) that pressure to exploit the remaining work-capacity reduces moral hazard problems with respect to both employer and employee behavior.
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