The Netherlands Embarks on Welfare Reform

January 22, 2014

The Netherlands, which built one of the world's largest welfare states, is trying to reduce welfare dependency, says Michael Boskin, a professor of economics at Stanford University.

In the 1960s and 1970s, the Netherlands developed a welfare program that contained so many subsidies and transfer payments that after-tax wages were barely higher than the benefits being paid out by the government. When Dutch citizens lost their jobs, they rarely returned to work.

The welfare state did a lot to damage the Dutch economy. King of the Netherlands, Willem-Alexander, recently said: "Our labor market and system of public services no longer fully meet the demands of the twenty-first century....The classical welfare state is slowly but surely evolving into a participation society."

As a result, the country is taking steps to change that:

  • Disability insurance led to skyrocketing disability payments, even while the percent of workers in dangerous jobs decreased. To deal with that rise in payments, the Dutch are requiring firms with high claim rates to pay more for the insurance, to incentivize workplace safety.
  • The country has begun using information campaigns to encourage the unemployed to return to work, and welfare recipients now must demonstrate proof that they are actively searching for a job before they can become eligible for benefits. They also must work or perform volunteer community service while receiving benefits. Even if a job requires a long commute, the system requires that recipients take that job.

Other countries should take similar steps. All countries are going to see an increase in dependency as life expectancies rise. The United States, in the next 30 years, will go from one retiree for every three workers to one retiree for every two workers, and Italy and Germany each will have a 1:1 ratio.

Governments should make an effort to rein in their unsustainable welfare state programs before it is too late.

Source: Michael J. Boskin, "A Dutch Cure for the Dutch Disease," Project Syndicate, January 16, 2014.

 

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