Turning kurzarbeit into a permanent labour market instrument

The short-time work scheme to help companies during next crises.

Slovakia has learned a new word during the COVID-19 pandemic – kurzarbeit, or short-time work. The government has introduced this scheme known from Germany and Austria as a temporary instrument to help companies hit by the coronavirus crisis to keep their labour force and assist them in restarting their operation after demand for their products resumes. Now, it is working to make it permanent.

"The Slovak version of [permanent] kurzarbeit may work as an insurance scheme to be financed by companies and employees," said Labour Minister Milan Krajniak (Sme Rodina), adding that accumulated money might be used as a salvage package in the next crisis.

The Labour Ministry is just starting discussion with the business community about in what form the permanent short-time work scheme should be incorporated into the Slovak legislation.

"We welcome the introduction of the permanent kurzarbeit model, whose aim is to avoid layoffs during a crisis," said Miriam Filová, spokesperson of the Federation of Employers’ Associations (AZZZ).

Good experiencefrom Germany

Germany has been using kurzarbeit for a long time and considers it a big success, said German Ambassador Joachim Bleicker, who was involved in the effort to introduce the scheme in Slovakia.

During the last big crisis, in 2009, 1.5 million German workers used this scheme; it was considered the biggest crisis since World War II back then. Now, there are 7.3 million people on the scheme while Germany has relaxed some of the criteria for its application. The result is that even though the unemployment rate went up, it was considerably less than it would have been without kurzarbeit.

"The whole idea of kurzarbeit is to jumpstart the economy whenever supply chains are working again and demand is rising," Bleicker told The Slovak Spectator.

Bleicker sees this instrument as useful not only for small companies but also big ones that are considered to be rich anyway.

"They are the biggest employers and therefore have a big effect on the numbers," said Bleicker. "I think the [Slovak] government realised that. It is also helpful that the European Commission in the SURE programme promised to reimburse countries that introduce this kind of scheme. This helped Slovaks to take a chance and introduce it faster."

How it works

Kurzarbeit in Germany means a temporary reduction of regular working time. Employees need to work fewer hours, employers reduce their costs by paying less remuneration while employment relations remain unaffected. The state grants a short-time allowance if ordinary working hours are temporarily reduced due to economic reasons or unpredictable circumstances.

The short-time allowance partially compensates for the loss of remuneration.

Because of the enormous impact of the coronavirus it recently increased from 60 percent up to 80 percent, or from 67 percent up to 87 percent if at least one child is part of the employee’s household.

The scheme is financed by the budget of the federal employment agency, explained Markus Halt, spokesperson of the Slovak-German Chamber of Commerce (AHK Slowakei), adding that the kurzarbeit models in Germany and Slovakia differ.

"The Slovak model consists of two pillars. It grants allowances per employee either to employers with significant reduction in turnover or to employers who send their employees home without any work and continue to pay 80 percent of their wages," said Halt. "In Germany, it is an allowance which is directly paid to the employees and not to the employer. Thus, it is not classified as a subsidy in Germany. The financing derives from the unemployment insurance whereas in Slovakia, it is being paid by taxes, which should be covered by EU funds."

Slovakia has introduced the temporary short-time work instrument within the First Aid package of measures to help companies to survive the coronavirus crisis. It consists of two measures and it will terminate at the end of September. Within Measure No. 1, companies that halted their operation on the order of the Public Health Authority (ÚVZ), can apply for the financial support – up to 80 percent of the average wage of its employee while the allowance is capped at eur1,100 per employee. This measure has applied, for example, to restaurants and shops, which were closed on the order of the ÚVZ.

Within Measure 3A and 3B, the only companies that can apply are those that decided to interrupt their operation to protect the health of their employees and clients, or due to decreased demand or a significant decrease in sales can apply. This measure pertains, for example, to carmakers and other producers, which halted their operation based on their own decision. Under this measure, they can apply either for an allowance of up to 80 percent of the average wage of the employee capped at eur880, or an allowance of up to 80 percent of the average wage capped at eur540.

Since launching these measures, the state has paid out eur56.4 million within Measure 1 and eur111 million within Measure 3A before July 17. This has helped to maintain 445,316 job positions while one position could have been repeatedly supported for several months, stated Veronika Husárová of the Labour Ministry.

"Companies especially applied for these allowances in the first months after the pandemic started, when they had to halt their operation or when they curbed their operation due to fear of the health of their employees," Husárová told The Slovak Spectator, adding that the support was covered from the state budget and EU funds.

The AZZZ has welcomed that the scheme is financed by the state.

"As the state has declared a state of emergency, thereby restricting the operation of companies, it should compensate them for some costs," said Filová. "If the state takes over some wage costs, it will help companies survive. We are aware that this tool is not a cheap solution, but we are motivated by examples of good practice from the past."

Klub 500, an association of companies with more than 500 employees, admits that the state aid provided after the pandemic occurred had prevented the worst scenarios from materialising, but today companies are running out of breath. It keeps criticising the government for very low total assistance consisting of short-time work allowances and other compensations provided to companies. The association warns that if the government does not increase assistance, companies will be forced to lay off people en masse.

"Within the first round the European Commission has enabled spending of more than eur 1.3 billion to keep job positions within Slovakia’s First Aid package," said Jozef Dušan Hric of Klub 500, adding that it was the government and not the EC that has placed limitations on who can receive aid and under what conditions. "This is not money from the state budget, but unspent EU funds, which if we do not spend, we will have to return to the EU budget. Therefore, it makes more sense to increase the current amount of aid and effectively protect job positions before it is too late."

Permanent short-time work scheme

The Labour Ministry proposes incorporating the short-time work scheme into the Slovak legislation in the form of a new insurance scheme to be financed through a new fund at the state-run social security provider Sociálna Poisťovňa.

Employers and employees will contribute to this fund in a 50:50 ratio. Several alternatives of the exact share of an employee’s gross wage to be contributed exist. There is also a proposal to cover part of this fund from the unemployment insurance fund at Sociálna Poisťovňa as it has been in surplus in the long run.

The allowance is proposed to account for 60 percent of the total wage cost of an employee while it will be paid out directly to the employee. The employer will be obliged to pay the employee the wage at 20 percent.

"The purpose of the new insurance scheme is to keep job positions and the competitiveness of Slovak companies during an economic crisis, recession and a crisis situation," reads the ministry’s document.

The advantage of countries that have introduced this instrument is not only the continued employment of workers. This includes a smooth production restart of a given company after the crisis, as a company does not need time for recruitment and training of new employees.

The discussion is in very initial phase and various models of its financing must be verified to clarify the impact on both employers and the state budgets.

"Reviewing good practices from other European countries we perceive that an effective model integrates financial contribution from employers and the state," Wilfried Serles, managing partner of the consulting firm Grant Thornton Slovakia, told The Slovak Spectator.

Michal Páleník of the Employment Institute and the Faculty of Management at Comenius University welcomes that the planned permanent short-term work scheme smashes the so-far binary setup of labour legislation, where a worker is either employed or unemployed, on maternity leave, or sick leave, but nothing in between.

"Kurzarbeit is a quasi partial unemployment benefit and thus disrupts this binary setup," Páleník told The Slovak Spectator, adding that it took Germany some 10 years to fine-tune its setup.