CSB Working Paper, 2017, 11: Fit for the labour market? An effort to reduce inactivity traps in the transition from benefit to work in the Belgian sickness and disability system

In the context of ‘social investment’, European welfare states underline increasingly the importance for the long-term development of human capital and labour market integration. The emphasis is put on individual empowerment and making work pay. In Belgium this evolution has been translated into several measures that aim to increase labour market participation and to tackle inactivity traps. In this article we study the financial added value of the transition from a full sickness benefit to (par…

In the context of ‘social investment’, European welfare states underline increasingly the importance for the long-term development of human capital and labour market integration. The emphasis is put on individual empowerment and making work pay. In Belgium this evolution has been translated into several measures that aim to increase labour market participation and to tackle inactivity traps. In this article we study the financial added value of the transition from a full sickness benefit to (part time) work. Besides, we look at the adequacy of this new situation compared to the poverty threshold. In an effort to strengthen the financial work incentive, we construct an alternative re-integration system for sickness and disability beneficiaries and look at itsimpact on inactivity traps and poverty risks. We use a simulation model for hypothetical families that allows to calculate the impact of socio-economic transitions on the net disposable household income. We find that the financial returns of working are substantial when people start working at the same average income level as before the period of sickness, but not if people start working at a lower wage. For single-earners or single parents that start working at a minimum-wage we find strong inactivity traps.