Commission staff working document
: SUPPORTING LABOUR MARKETS DURING THE CRISIS: SHORT-TIME WORKING
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- 3.1: SHORT-TIME WORKING ARRANGEMENTS
- 3.2: PHASING OUT CRISIS-RELATED LABOUR MARKET MEASURES
- 3.3: THE WAY FORWARD
3: SUPPORTING LABOUR MARKETS DURING THE CRISIS: SHORT-TIME WORKINGSince the onset of the global downturn, policy makers across the EU have been concerned to mitigate its adverse effects on the labour markets. This is because previous crises have shown that sharp output declines usually take two to three quarters to be transmitted into noticeable rises in unemployment, reductions in demand for new workers, and overall contractions in employment. However, Member States face significantly different situations and constraints. Some, including Ireland, Spain, Latvia and Lithuania, have been particularly hard hit by the crisis and have experienced substantial reductions in employment and increases in unemployment, while in others, including Belgium and Germany, the loss of jobs has been relatively limited. Nevertheless, an assessment of the crisis-related labour market policies of all Member States is of common interest, given their commitment to the common EU goal of creating more and better jobs for all. This section focuses on short-time working, which has been a tool used by many Member States as a means of maintaining employment during the downturn caused by the crisis, based on a recent joint paper published by the Directorate-General for Economic and Financial Affairs and the Directorate-General for Employment, Social Affairs and Inclusion.25 3.1: SHORT-TIME WORKING ARRANGEMENTSThere has been a significant increase in the use of short-time working around Europe. Most strikingly, the number of recipients in Germany increased from 39 000 in May 2008 to more than 1 500 000 in May 2009, while in Belgium the number of recipients increased from around 87 000 in July 2008 to a peak of 313 000 in March 2009, after which it started to decline gradually. In Austria, the total number of recipients rose from zero in August 2008 to more than 36 000 in June 2009, falling thereafter. A more modest increase can be observed in the other Member States. Scope and limitations of short-time working A short-time work arrangement (STWA) can be seen as a temporary reduction in working time intended to maintain an existing employer/employee relationship. It can involve either a partial reduction in the normal working week for a limited period of time (a partial suspension of the employment contract) or a temporary lay-off (zero hours a week), in other words, a full suspension of the employment contract. In both cases, however, the employment contract remains in force, and is not broken. See box 1.6 for a summary of the main institutional characteristics of STWAs. The objective of STWAs in times of economic crisis is twofold. First, it enables companies to reduce labour costs in the short term and to quickly adjust labour inputs to cyclical fluctuations in labour demand by reducing working time for the existing workforce, rather than resorting to lay-offs and related costly and lengthy dismissal procedures, especially in highly regulated labour markets. Moreover, it enables companies to retain skilled workers, thus avoiding the costs of recruiting and training new workers when demand recovers, and enhances employee morale. Second, to the extent that they prevent lay-offs, such measures spread the adjustment burden over all of the workers rather than concentrating the impact on a few, possibly more vulnerable workers, who might otherwise risk becoming inactive in the long term. However, two main kinds of risks are associated with STWA schemes. First, they could lead to deadweight costs as they may encourage employers to enrol in such schemes, even if no lay-offs are planned. This may lead to excessive take-up and become an undue financial burden on national unemployment insurance schemes, which are the usual financing instrument in the EU. In the long run, taxes or contribution rates would have to be increased — inducing higher wage costs and loss of competitiveness. This is in contrast to the USA, where the financing of STWAs is generally privately arranged and insurance-based. Second, STWAs could prove ineffective in saving jobs permanently. The jobs kept alive for some time could eventually prove to be unviable and ultimately end in lay-offs. In the meantime, more viable jobs held by non-beneficiaries of such schemes — who would typically be new entrants to the labour market or SMEs — might be exposed to effective ‘displacement’. Box 1.6: Institutional characteristics of short-time working There is considerable variety in the institutional arrangements concerning short-time working programmes across Europe. In France, Belgium and Luxembourg, public short-time working and temporary lay-off schemes are usually known as ‘partial’ or ‘temporary unemployment’, sometimes with reference to the specific application or circumstances (eg economic, seasonal, and technical). These schemes should be distinguished from voluntary working time reduction on an individual or collective basis (through time accounts, time credit, sabbatical leave, etc.26) or from ‘part-time unemployment’, which indicates a situation where (partially) unemployed jobseekers would prefer to work longer hours or full time, but can only find part-time work and receive various forms of direct financial support for the incurred loss of earnings. In Denmark, short-time working is designated as ‘work sharing’. This indicates a reduction in working time intended to spread a reduced volume of work over the same number of workers to avoid lay-offs. As such, it is to be distinguished from ‘job sharing’, which refers to a voluntary arrangement whereby two persons take joint responsibility for one full-time job. In the Netherlands, short-time working support was temporarily offered up until the end of March 2009 in order to respond to the economic crisis. Since then, companies experiencing temporary financial difficulties may apply for partial unemployment for their workforce. Austria and Germany simply refer to such schemes as ‘short-time working’, while Italy stresses the aspect of income support in its short-time working scheme, which is called the Wage Supplementation Fund (CIG27). The Italian scheme is among the larger examples of STWAs in the EU and was created with the specific purpose of absorbing sectoral crisis and favouring technological/commercial restructuring. In countries such as Estonia, companies and employees may agree on STWA, however, without public financial support. In most of the other Member States (Estonia, Greece, Cyprus, Malta and Sweden) which do not have government-subsidised STWAs to respond to drops in labour demand caused by an economic downturn, insured workers can get support through the regular unemployment scheme, or receive training grants for people working reduced hours. Main changes in response to the crisis Table 1.3 summarises the main changes in the STWAs across the Member States since the onset of the economic crisis. In the Member States where STWAs already existed before the crisis, the practical arrangements concerning these schemes were temporarily modified with the onset of the crisis (ie in Belgium, Denmark, Germany, Ireland, Spain, France, Italy, Luxembourg, Austria, Portugal and Finland). These modifications are primarily aimed at lowering the participation costs for employers and/or increasing the level of financial support by: extending the eligibility duration; opening the arrangement to more participants; and simplifying the enrolment procedure. In nine Member States (Bulgaria, Czech Republic, Latvia, Lithuania, Hungary, Netherlands, Poland, Slovenia and Slovakia) new public support schemes for STWAs have been temporarily introduced since the onset of the downturn. A feature of most of these arrangements is that public support for short-time working is combined with training. It remains optional in a majority of Member States but in the Czech Republic, Hungary, Netherlands, Portugal and Slovenia, people in short-time working are required to undertake training. In Belgium, Germany, Lithuania, Hungary, Malta, Austria, Poland, Portugal, Slovenia and Finland, training for those in short-time work is government-subsidised. Table 1.3: Recent changes and new STWAs in the EU Member States
Note: STC: short-time compensation. For new STW schemes we look at: introduction of benefits for employees, training incentives and other extra incentives for employers. SSC: social security contribution. UI: unemployment insurance. WTO: working time organisation 3.2: PHASING OUT CRISIS-RELATED LABOUR MARKET MEASURESAlthough the Member States differ in terms of the constraints and initial conditions they face, and although labour market policies are only part of a more comprehensive policy package that bolsters potential growth and employment, improves competitiveness and supports fiscal consolidation, some general principles can be formulated regarding the phasing out of crisis-related labour market measures and the phasing in of structural labour market measures. First, a distinction can be made between labour market measures that have to be phased out gradually once the recovery is secured, such as STWAs, and measures that, due to their positive impact on the structural working of the labour market, should be maintained and reinforced. This latter category includes cuts in social security contributions, increases in training, activation and other flexicurity policies that facilitate job reallocation and workers’ re-skilling. There are also measures such as the Italian CIGS scheme, which is a permanent measure based on insurance contributions and which, prior to the crisis, had a credit balance, which is now about to be exhausted, if not already in the negative. The entitlements of this kind of scheme, as it is insurance-based, have a legal force and therefore a phasing out of the scheme would be problematic. On the other hand, when (if) growth returns, the CIGS will return to credit and therefore to abolish it would not make sense. The same is true for other insurance-based schemes in the EU. Second, the risks associated with the timing of the phasing out of the labour market measures should not be under-estimated. Too early a withdrawal may undermine confidence and thus depress aggregate demand, with consequent knock-on effects on companies in terms of orders or demands for services. Too late a withdrawal on the other hand may delay the necessary structural adjustments, lead to entrenched high levels of unemployment (labour market hysteresis), and contribute a significant additional burden to the public finances. Third, the phasing out of measures should reflect the situation and constraints of the Member States, with those that have advanced furthest in their recovery able to move faster than those where the recovery is still to come and where unemployment is expected to continue to increase — provided, of course, the fiscal position allows it. Fourth, as the fiscal constraints intensified during the course of the crisis, it became ever more important to improve the cost-effectiveness of labour market measures by strengthening their targeting and timing. Fifth, due consideration also needs to be given to the social dimension of the exit strategy, including the central issue of gender equality as part of the foundation to strengthen growth, employment and social cohesion in the long term. In any case, particular attention needs to be paid to differences in employment patterns between women and men: sector and occupational segregation, the greater presence of women in part-time jobs and in the public sector, and the lower numbers of women in self-employment. In this respect, it should be noted that, due to their high concentration in the public sector, women could be disproportionately affected by job losses when budgetary spending is cut as part of fiscal consolidation. For further consideration of this topic, see Chapter 2 of the European Commission’s Employment in Europe 2010 Report.28 3.3: THE WAY FORWARDFollowing the onset of the downturn, policy makers in the Member States of the European Union took a variety of decisions to introduce new labour market policies, or to modify or strengthen existing ones in order to maintain employment, create jobs, upgrade skills, increase access to employment, and support households. A major concern of the EU and its Member States has been to develop policy responses in ways that do not compromise long-term employment and growth potential. As such, labour market policies have been designed to be implemented in a temporary, timely, targeted, fair and coordinated way, and in line with flexicurity principles as well as with the country-specific recommendations for growth and jobs identified under the Lisbon Strategy. Most measures are expected to expire by the end of 2010 or later if the recovery is slower than projected by labour market experts. However, some measures, such as hiring subsidies, job-search assistance and training, are expected to continue during the early phase of the recovery, which may well carry on until the end of 2011, as their effectiveness reaches its full potential in this phase. Nevertheless, it should also be noted that maintaining the arrangements for too long poses the risk that necessary restructuring is delayed, enterprises become overstaffed, workers lose the incentive to upgrade their skills, deadweight losses accumulate, and funds are diverted from other useful purposes such as training. When assessing the timeliness of the crisis-related measures, a distinction should be made between, on the one hand, measures that are more effective at the beginning of the crisis than at the end-phase, such as STWAs, and, on the other hand, measures that have greatest impact if they are implemented when the economy starts to recover, such as wage subsidies. Nevertheless, some measures maintain their effectiveness irrespective of the stage of the recovery, such as job-search assistance and training. By targeting people at the margins of the labour market, the effectiveness and fairness of the crisis-related labour market measures are often strengthened. For instance, in order to minimise the fiscal cost and maximise their fairness, hiring subsidies have been targeted at specific groups at the margin of the labour market. Nevertheless, although there are strong indications that all these crisis-related labour market measures had a positive impact on the variability of employment during the economic crisis, it is too early to determine whether employment saved by these measures will endure once the crisis recedes. Given the socio-economic complexity of the issue, it should be clear that EU-wide mutual learning, the exchange of good practice and a constructive dialogue with social partners should form the main driving forces for strengthening the effectiveness and equitability of the recovery measures. Finally, the phasing out of crisis-related measures should take into consideration the concrete situation and constraints of the Member States and be complemented by the phasing in of structural measures that are aimed at reducing structural unemployment, increasing labour market participation, developing a skilled workforce, promoting social inclusion and combating poverty. The main EU influence on the labour market is employment policy. However, there are links to many other strands of EU policy, not least industrial policy, which influence the actions of companies and the framework within which they operate. The next section of this chapter therefore examines the role of industrial policy in restructuring, with a particular emphasis on the crisis. 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