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Welfare debt relief has little effect on work and mental health

14 July 2023
The municipality of Rotterdam cancelled a large number of time-barred welfare debts in 2019. Professor of economics Pierre Koning and researchers from Leiden University and Tilburg University investigated whether this improved the labour market outcomes and mental health of indebted households.

A considerable proportion of Dutch households has debt problems, which affects their well-being.  Some of the debts of vulnerable households arise because they received too much assistance (in Dutch: bijstand) during a period of time and later have to pay it back to the municipality. In 2019, the municipality of Rotterdam relieved a large number of these debts because they were time-barred. This ‘natural experiment’ enabled labour economist Pierre Koning of the Vrije Universiteit Amsterdam to investigate the effects of social welfare debt.

Together with economists Ernst-Jan de Bruijn and Heike Vethaak of the University of Leiden and professor of economics Marike Knoef of Tilburg University, he compared the people whose welfare debts were written off with those whose debts were not yet time-barred and therefore not written off. Unfortunately, the positive effects of the measure were limited.  

In an article in economic policy magazine ESB, the researchers explain the results. "The debt relief has a clear and long-lasting effect on both the size of welfare debts and monthly repayments," the authors argue. The average outstanding assistance debt was 6,000 and due to the intervention, an average of 3,850 euros of debt was relieved.

Yet the researchers find no statistically significant effect on labour force participation and mental health problems. "These are mostly vulnerable low-income households who also have other debts. The municipality may have written off the time-barred welfare debt, but in many cases this allows other creditors to start demanding more repayments. This probably largely offsets the effect of the write-off," Koning explains.  "Another possible explanation are the structural labour market and health barriers, which many people with welfare debt experience," according to article in ESB.

Within a smaller group, the intervention did have an effect. "The measure does increase labour force participation among persons who had a relatively high welfare debt," according to the researchers. But an effective solution for the debt problems of all vulnerable households requires more than the relief of  welfare debts by the municipality.

In addition to funding from the municipality of Rotterdam, the researchers received funding from the Instituut Gak. The research is part of a more comprehensive study, to be published soon.

Read the ESB article. 

Want to know more? Contact science editor Yrla van de Ven, or 06-26512492.