Home service scheme, Denmark

About

Country: 
Denmark
Sectors: 
Maintenance and cleaning
Target Groups: 
employers/purchasers

 

The home service scheme (Hjemmeserviceordningen) was introduced as a pilot project in January 1994. It was possible to receive a subsidy for garden work, snow clearance, shopping for daily goods, cooking, cleaning, laundry and window cleaning. The target groups have included, on the supply side, people with low education levels and, on the demand side, households – particularly those with children and elderly persons.

 

Background

The home service scheme (Hjemmeserviceordningen) was introduced as a pilot project in January 1994. It was possible to receive up to DKK65 (€8.70, as at 25 January 2007) per hour with a maximum of 130% of the price the consumer should pay after deductions for expenses on transport and materials. The subsidy was given for garden work, snow clearance, shopping for daily goods, cooking, cleaning, laundry and window cleaning.

In June 1994, the subsidy increased to a maximum of up to DKK85 (€11.30) per hour with a ceiling of 150% of the price the consumer should pay after deductions for expenses on transport and materials. In January 1997, the scheme was made permanent and the subsidy was changed to 50% of the price excluding materials. At the same time, taking animals for a walk and packing in connection with moving house were added to the list of eligible activities.

The scheme was altered again in January 2000 when the subsidy for garden work and snow clearing was reduced to 35%. At the same time, the subsidies for taking animals for a walk, packing in connection with moving house, and window cleaning were abolished. On the other hand, it became possible to receive a subsidy of 50% of the price for bringing children to and from kindergarten and school.

In 2004, the home service scheme was substantially curtailed to cover only households in which at least one person is a pensioner or receiving early retirement benefits. It became possible to receive 40% of the price for general cleaning.

The main actors involved in the system include: the Danish Commerce and Companies Agency (Erhvervs- og Selskabsstyrelsen, EogS), an agency under the Ministry of Economic and Business Affairs (Økonomi- og Erhvervsministeriet), which administers the scheme; and recognised home service companies registered to pay value-added tax (VAT).

The target groups have included, on the supply side, people with low education levels and, on the demand side, households – particularly those with children and elderly persons. Since the change in legislation in 2004, only elderly and early retirement recipients are targeted.

Objectives

The home service scheme originally set out the following three primary objectives:

  • to reduce do-it-yourself work on domestic activities and curtail undeclared work;
  • to provide better employment for those less educated;
  • to give more welfare to families with children and elderly persons.

At the same time, it was expected that the scheme could also create new jobs.

Specific measures

The description of the home service scheme is based on the 2001a and 2004 reports from the National Agency for Trade and Industry (Erhvervsfremmestyrelsen).

Similar to the government service voucher scheme in Belgium, the Danish home service scheme is basically a wage cost subsidy for labour-intensive, low-skilled domestic work. Before the major change in the scheme in 2004, all residents in Denmark could make use of the home service scheme in order to purchase domestic help, ranging from garden work, snow clearance, and shopping of daily goods, to cooking, cleaning, laundry and window cleaning. The subsidised activities are carried out by self-employed persons or by employees working for a company that is recognised as a home service company.

As of January 2004, the subsidy (40% of the price) is granted to the household of elderly people, but for practical reasons it is paid to the home service company. Each consumer has to declare his or her personal registration number in connection with payment for the services; this is necessary in order to receive the subsidy and has been implemented as a measure to reduce fraud within the scheme. At the beginning of the system in the 1990s, the users did not have to declare their personal registration number. However, it transpired that some home service companies received the subsidy without actually having carried out home service activities. Therefore, it was decided to require buyers to provide their personal registration number.

It is interesting to note that the annual reports from EogS contain a chapter regarding control of the system. The report for 2000 states (2001, p. 9) that some companies do not comply with accounting laws (bogføringsloven) and VAT, but the report does not provide figures on the scale of the problem. In 2000, EogS carried out controls in about 5% of the home service companies, and these inspections were supplemented with controls among receivers of home services. EogS sent a balance sheet to a sample of home service users stating all the home services they had received according to the data held by EogS. The users could then check whether it was in accordance with the services they actually had received.

Evaluation and outcome

The following evaluation is based on Andersen, 2000; Erhvervsfremmestyrelsen, 2001a; Erhvervsfremmestyrelsen, 2001b; and Larsen, 2006.

Achievement of objectives

Creating new jobs

According to Erhvervsfremmestyrelsen (2001a, p. 7), some 3,700 persons in full-time employment – self-employed persons as well as employees – participated in the home service scheme in 2000. This represented an increase from 2,400 full-time employed persons in 1997. After the change of the scheme in 2004, the number of employed persons declined to 700 full-time equivalents (FTEs) in 2006.

  • Of those employed in 1998 in a home service company, approximately 40%–45% had also been employed in such a company in 1996. Some 35% of the workers had come from another occupation and about 20%–25% took up the work after being unemployed (Erhvervsfremmestyrelsen, 2001a).
  • In 1999, about 15% of home service companies stopped operating. The same figure for 1998 was 20% (Andersen, 2000).

Incentive to move from do-it-yourself work and undeclared work to regular work

Erhvervsfremmestyrelsen (2001a) carried out an analysis of whether the home service scheme transferred jobs from do-it-yourself activities and undeclared work to regular work. The background report describes a survey among receivers of home services, which showed that 75% of home service users had previously carried out the activities themselves and about 10% had previously bought cleaning activities as undeclared work (Erhvervsfremmestyrelsen, 2001a, pp. 46–47). According to the report, the home service scheme had reduced the users’ time on do-it-yourself activities on cleaning and garden work by about 3.5 million hours or the equivalent of around 2,100 full-time jobs.

This survey was supplemented with a special analysis of data from the Rockwool Foundation Research Unit (Rockwool Fondens Forskningsenhed), compiled on the basis of questionnaires on undeclared work for 1994–1998. According to Erhvervsfremmestyrelsen (2001a, p. 56), the data from the Rockwool Foundation Research Unit could not document a decline in the amount of undeclared work due to the home service scheme. Erhvervsfremmestyrelsen (2001a, p. 52) concluded that the scheme had only achieved a minor reduction in undeclared work, although the separate conclusions report (Erhvervsfremmestyrelsen, 2001b) considered that the scheme had reduced both do-it-yourself work and undeclared work. Overall, it seemed that the home service scheme had attracted other customers than those demanding undeclared work. It thus appeared that the home service scheme had developed a new market for these activities.

Better employment opportunity for those less educated

Andersen (2000) estimated that about 73% of the employees in home service companies had no formal education. Among employers, the same figure was around 50%. This is far above the figures for the total labour market but is not different to the cleaning industry in general: 73.5% of workers employed in this economic activity have no formal education.

Giving more welfare to families with children and elderly persons

According to Erhvervsfremmestyrelsen (2001b), home service users of cleaning activities are typically people aged in their 30s. Particularly families with small children seek home service cleaning activities more often than others; about 14% of families hired such activities. An important factor in the profile of those demanding home service activities is whether women in the household are working or not. The demand for home service cleaning activities increases with income. People older than 50 years require more home service garden activities.

Obstacles and problems

In April 2006, the Rockwool Foundation Research Unit published new data on the development of undeclared work from 2001 to 2004/2005 (Larsen, 2006). According to the new data, it emerges that undeclared work declined between 2001 and 2005. Larsen (2006, p. 1) attributes this reduction entirely to the fact that men are working less while women have increased their undeclared work. More women were doing undeclared work in 2005 than in 2001: 13.8% of women in 2004/2005 carried out undeclared work, compared with 11.5% in 2001. Moreover, those who were active also spent more hours a week on their undeclared activities (4 hours, 43 minutes a week on average in 2004/2005 compared with 3 hours, 23 minutes a week in 2001).

One explanation for this development, provided by Larsen, is that when the home service scheme was limited to elderly people and early retirement recipients, more people began to buy their cleaning activities as undeclared work. In other words, the scheme has created a new market for state-subsidised cleaning activities. People had become used to having their cleaning done by others. When the scheme was abandoned, they instead bought their services as undeclared work.

In an article from 1996 in the Swedish journal Ekonomisk Debatt, Peter Birch Sørensen gives theoretical arguments from a tax and labour market perspective showing that subsidising home service activities can have a positive effect even though it can lead to a higher tax on other parts of the economy. One of the central arguments for showing these positive effects is that home service subsidies will shift activities from undeclared work to the formal market.

As mentioned above, one of the objectives of the introduction of the home service scheme was to combat undeclared work. It is ironic that the scheme itself was misused and that it became necessary to introduce control measures. Figures for this misuse have not been published, but it has been sufficiently large to prompt EogS to write a chapter on control initiatives in their annual reports for 1998, 1999 and 2000.

Impact indicators

The following impact indicators were taken from Erhvervsfremmestyrelsen, 2001a; Andersen, 2000; and Bendtsen, 2007.

  • 4,800 persons (employers and employees) were employed in the home service scheme in 2000, representing 3,700 FTE; 73% of these were low-skilled.
  • In 2006, 700 FTEs were employed.
  • 232,000 households used the home service scheme in 2000 – approximately 10% of all households in Denmark.
  • In 2006, 29,000 households used the home service scheme.
  • 4,200 home service companies were active in 2000, compared with 2,600 such companies in 1994.
  • In 2006, 1,200 companies received a subsidy.
  • Turnover was DKK 200 million (€26.6 million) in 1994 and increased to DKK 1.2 billion in 2000 (€160 million).
  • Subsidies amounted to DKK 477 million (€63.6 million) in 2000. In 2006, subsidies had declined to DKK 80 million (€10.7 million).
  • The subsidy level in 2000 was equivalent to a grant of DKK 97,000 (€12,900) per employed person or DKK 126,000 (€16,800) per full-time employed person, while the 2006 subsidy equated to DKK 114,000 (€15,200) per full-time employed person.

Taking into account that employment under the home service scheme reduces the costs of unemployment and social security benefits, the net costs were estimated at DKK 125 million (€16.4 million) in 2000. The net costs in that year per full-time employed person amounted to DKK 33,784 (€4,432).

Transferability

It is most likely that a subsidy to home service activities can create new jobs in other countries, as in the Danish and Belgian cases. It is also likely that such jobs will be for the benefit of those less educated, as in Denmark and Belgium. However, based on Danish experience, it is not clear whether a subsidy for home service activities can combat undeclared work to a large extent.

Contacts

Main organisation responsible: the Danish Commerce and Companies Agency (Erhvervs og Selskabsstyrelsen)

Website: www.eogs.dk

Bibliography

All links accessed on 28 January 2008

Andersen, L., Hjemmeservice – Status og fremtid [Home service – Status and the future], AE Rådet, April 2000. Available online at: http://www.aeraadet.dk/media/filebank/org/erhv-c-02-00.pdf

Bendtsen, B., Redegørelse af 30/5 07 om erhvervsstøtte 2007 [Statement from 30 May 2007 regarding business subsidies], 2007. Available online at: http://www.folketinget.dk/doc.aspx?/samling/20061/MENU/00000002.htm

Erhvervsfremmestyrelsen, Baggrundsrapport. Samfundsøkonomiske konsekvenser af hjemmeserviceordningen [Background report. Economics of the home service scheme], 2001a. Available online at: http://www.oem.dk/sw2923.asp

Erhvervsfremmestyrelsen, Konklusionsrapport. Samfundsøkonomiske konsekvenser af hjemmeserviceordningen’ [Conclusions report. Economics of the home service scheme], 2001b. Available online at: http://www.oem.dk/sw2923.asp

Erhvervsfremmestyrelsen, Hjemmeservice fra og med 1. januar 2004 [The home service scheme from 1 January 2004], 2004. Available online at: http://www.eogs.dk/sw26823.asp

Erhvervs og Selskabsstyrelsen, Årsrapport 2000 [Yearbook 2000], 2001. Available online at: http://www.eogs.dk/sw26816.asp

Larsen, C., Nyt fra Rockwool Fondens Forskningsenhed. April 2006 [News from the Rockwool Foundation Research Unit. April 2006], 2006. Available online at: http://www.rff.dk/da/publikationer/nyhedsbreve/2006/nyhedsbrev_apr_2006/

Sørensen, P. B., ‘Subsidiering af husholdningstjenester: Teoretiske argumenter og praktiske erfaringer fra Danmark’ [Subsidising household services: Theoretical arguments and practical experiences from Denmark] in Ekonomisk Debatt, Vol. 24, No. 5, 1996.

Søren Pedersen

 

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