Jeppe Elholm Madsen defends his PhD thesis at the Department of Economics

Candidate:

Jeppe Elholm Madsen, Department of Economics, University of Copenhagen

Title:

Trade-offs in Social Insurance: Balancing Insurance and Work Incentives for Health Impaired Individuals

Supervisor:

• Søren Leth-Petersen, Professor, Department of Economics, University of Copenhagen

Assessment Committee:

• Mette Ejrnæs, Professor, Department of Economics, University of Copenhagen
• Rune Vejlin, Professor, Department of Economics, Aarhus University
• Stefan Staubli, Associate Professor, Department of Economics, University of Calgary

Summary:

Chapter 1 (w. Anders Holm):

The rapid expansion of disability insurance (DI) programs in Western countries raises questions about the genuine inability of program participants to work and the labour market barriers they face. This paper examines the effects of a Danish labour market reform that replaced the Danish DI program with a combination of DI and a "workfare program" (WP) with tailored assistance for individuals facing employment barriers. After the reform, $80$ percent of the DI program inflow was directed into the WP for people under the age of 40. The transition into employment is positively affected by the reform, with employment primarily being within subsidized employment. Additionally, we find that the positive effect into subsidized employment comes at the cost of a $15$ percent lower income in the long run. We contribute previous research focusing on individuals at the margin of enrolling into DI because our data allows us to focus on average enrollment. Doing so, we find only small positive effects on employment and negative effects on income.

Chapter 2:

The second paper investigates the effects of a 2014 policy reform on paid sick leave in Denmark. The reform reduced benefits by up to 40 %, shortened sick leave eligibility, and introduced a return-to-work activation program. Despite an increase in municipal costs for activation efforts targeting sick leave recipients having doubled,  there was no significant improvement in employment rates. The study finds that a typical program recipient has no wealth and is burdened with a debt equivalent to 10 months' worth of banking debt. Given the absence of savings and significant debt, the reduction in benefits, coupled with no improvement in employment opportunities, results in a direct reduction in consumption possibilities for those participating in the program.

Chapter 3:

This paper delves into the welfare implications of alterations in the paid sick leave program. Leveraging detailed Danish administrative data, I introduce a structural search model, rooted in traditional search and discrete choice models. The model captures the interplay between an individual's health status, age, job offers, education, and their decision to either return to work or prolong their sick leave. The model facilitates simulations to understand the consequences of enforcing stricter eligibility criteria for paid sick leave extensions. The findings indicate that although enforcing stricter criteria can result in fiscal savings, it is crucial to recognize that these savings are predominantly borne by those with the poorest health, as they face the most significant reductions in transfer payments.

An electronic copy of the thesis can be requested here: lema@econ.ku.dk