Longer welfare application processes reduce benefit take-up but also lower re-employment rates among those who are awarded benefits
For public support and the efficiency of social security programs, it is crucial that benefits are received by those who need them most. To achieve this, eligibility checks, typically conducted by case workers, play a key role in screening benefit applications. However, an often-overlooked aspect of this process is that it is time-consuming and therefore extends the period between application and award decision.
In our recent IZA Discussion Paper, we examine the consequences of longer application processing times on benefit receipt and employment outcomes. We use unique administrative data on welfare applications in the Netherlands and exploit the fact that applications are essentially randomly assigned to case workers, who differ substantially in how quickly they process applications. Consequently, the average processing time is about nine weeks, with a standard deviation of 3.1 weeks. This variation across case workers creates a natural experiment that allows us to isolate the causal effects of longer processing times.
We find that longer processing times have two important effects with substantial income consequences for applicants. First, applicants who face longer processing times are more likely to withdraw or fail to complete their applications. On average, each additional week taken to review an application leads to a 0.62 percentage-point decline in benefit take-up. Given that only about 6% of applicants ultimately do not receive benefits, this effect is economically significant. Notably, the effect is most pronounced among applicants with better labor market prospects, suggesting that longer processing times improve the targeting of welfare benefits by discouraging those who are expected to be more self-sufficient.
Second, longer processing times increase welfare dependency and reduce time spent in employment among individuals who are awarded benefits. Because longer processing delays entry into the welfare program, they extend the period during which job search efforts are not monitored and reintegration services have not yet begun. Applicants may also mistakenly believe that finding a job would cause them to lose any accumulated welfare entitlements. Together, these factors contribute to longer periods of inactivity.
Beyond these mechanisms, waiting for benefits is likely to cause financial stress, which may inhibit successful job search. This concern is particularly relevant given that welfare applicants are likely to be liquidity constrained at the time of application. To mitigate this, case workers may arrange provisional benefit prepayments to applicants four weeks after submission. We find that receiving welfare prepayments increases the earnings of awarded applicants, supporting the notion that prepayments help alleviate financial stress and foster successful job search.
In conclusion, improving the effectiveness and fairness of benefit programs requires policymakers to strike the right balance between ensuring accurate targeting and minimizing the unintended harm caused by lengthy processing times. Our findings indicate that delays in the application process have both beneficial and detrimental effects, depending on applicants’ characteristics and the availability of supportive measures such as provisional prepayments.
© Heike Vethaak, Ernst-Jan de Bruijn, Marike Knoef, and Pierre Koning
Heike Vethaak is Assistant Professor at Leiden University, the Netherlands
Ernst-Jan de Bruijn is Assistant Professor at Leiden University, the Netherlands
Marike Knoef is Professor at Tilburg University, the Netherlands
Pierre Koning is Professor at Vrije Universiteit Amsterdam, the Netherlands, Research Fellow at Tinbergen Institute, the Netherlands, and IZA Research Fellow
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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.
Related IZA World of Labor content:
https://wol.iza.org/articles/job-search-monitoring-and-assistance-for-the-unemployed by Ioana E. Marinescu
https://wol.iza.org/articles/job-search-requirements-for-older-unemployed-workers by Hans Bloemen
https://wol.iza.org/articles/impact-of-monitoring-and-sanctioning-on-unemployment-exit-and-job-finding-rates by Duncan McVicar
https://wol.iza.org/articles/do-case-workers-help-the-unemployed by Michael Rosholm
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