Transcript Experience of Slovak Labour Market Reform

Experience of Slovak Labour
Market Reform
Peter Goliaš
INEKO – Institute for Economic and Social Reforms
30 November, 2007
Belgrade, Serbia
(Un)Employment in Slovakia
Source: Statistical Office of the SR
FDI and GDP growth
10,0
8,0
Automobile producers: PSA, KIA
7,0
6,8
6,0
5,5
6,0
4,5
5,0
4,1
4,0
3,0
2,0
8,8
8,3
9,0
2,1
1,7
1,2
0,9
1,3
1,0
0,0
2003
2004
2005
2006
Foreign direct investment less privatization (in % of GDP)
2007/F
2008/F
Real GDP grow th (in %)
Source: Statistical Office of the SR (GDP), ING Bank (FDI)
Sources of GDP growth
Tax reform (2004)
Privatisation by foreign investors (1998-2002)
21%
17%
Reforms before 1998
12%
10%
10%
Pension reform (2004-2005)
4%
Other sources
26%
Entry to the EU (2004)
Labour Code Amendment (2003)
Source: INEKO survey among 12 local economists, March 2007
Labour Code
Basic features of 2003 reform:
• More flexibility
• Less coercive character – setting only basic standards
• Weaker trade unions
Before 2003
2003-2007
After 2007
3+2 months
2 or 3 months
2+2 or 3+3 months
No
Indefinite
Up to 3 years
150 hours
400 hours
400 hours
Approval by union for group
dismissals and firing workers
Yes
No
No
Retraining before dismissal
Yes
No
No
Union approval for flexible
work time
Yes
No within 4month period
Yes
Firing costs
Extension of term contracts
Overtime yearly
Labour Code
Cost to temporarily expand production by 50%
(Percentage increase in labour cost)
120%
111%
111%
99%
100%
90%
80%
60%
40%
90%
72%
54%
Before reform
39%
After reform
39%
27%
20%
0%
Namibia
Norw ay
Hungary
Latvia
Source: The World Bank Doing Business in 2005
Slovakia
Social welfare reform
Basic features:
• “It pays off to work” principle
• Activation benefits: 30% of social benefits conditional upon activity
• More frequent visits at the Labour offices
The reform addressed
trade-off between reducing
benefit dependency and
risk of poverty.
Number of s oc ial benefits rec ipients
280 000
260 000
240 000
220 000
200 000
180 000
160 000
140 000
3Q 07
2Q 07
1Q 07
4Q 06
3Q 06
2Q 06
1Q 06
4Q 05
3Q 05
2Q 05
1Q 05
4Q 04
3Q 04
2Q 04
1Q 04
4Q 03
120 000
Source: Headquarters of Labour, Social Affairs and Family
Poverty risk rate
2004
2005
13.3%
11.6%
Source: Ministry of Labour
Unemployment trap
• More low income workers are eligible for social benefits (25% of a worker’s
salary can be deducted for the purpose of determining whether a household
is eligible for social benefits)
• Low income workers pay lower taxes (The basic tax allowance deductible
from the tax base went up almost three-fold)
Definition: The
unemployment trap
T he Unemploy ment T rap
measures the % of
(In % of gros s earnings ; s ingle pers on without c hildren; earning, when
in work, 67% of the average earnings )
gross earnings which
80
is “taxed away”
70
through higher tax
and social security
60
contributions and the
50
withdrawal of
40
unemployment and
other benefits when
30
an unemployed
2001
2002
2003
2004
2005
2006
person returns to
Source: Eurostat
employment.
Child benefits
Child benefits before 2004:
(1) Flat benefit (270 SKK per child, monthly) – universal, regardless the income
(2) Means-tested benefit (210 SKK – 620 SKK per child, monthly)
(3) Tax base bonus (16,800 SKK per child, yearly) –deductible from the tax base
Child benefits after 2004:
(1) Flat benefit (SKK 500 per
child, monthly) – universal,
regardless the income
(2) Tax bonus (SKK 400 per
child, monthly) – bonus
deductible from the income
tax, conditional on at least
one parent being employed.
If the tax is lower than the
tax bonus, the family
receives the difference.
T ax wedg e on families
(Income tax plus employee and employer contributions les s cas h benefits ;
married couple, one earner, 2 children; as % of gros s wage)
34
32
30
28
26
24
22
20
2002
2003
2004
2005
2006
Source: OECD Taxing Wages
Challenges for future reforms
• Higher qualification
Unmeployment by educ ation
(in thous ands of people)
500
450
400
350
300
250
200
150
100
50
0
Tertiary
S ec ondary
A pprentic e
P rimary
2002
2003
2004
2005
2006
Source: Statistical
Office of the Slovak
Republic
• Flexible immigration policy
• Lower taxes on labour (Social security)
Thank you for your attention!