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Chapter 1: The legacy of the crisis: resilience and challenges
A key choice is often between cutting On the other hand, a shift away from social • Activation measures, such as training
employee or employer social security security contributions to indirect taxes could and employment subsidies, which need
contributions depending on whether the limit the scope for indirect taxes to act as to ensure that people who become
aim is to stimulate labour demand or automatic stabilisers across the economic unemployed can remain in the labour
labour supply. In some countries, cuts in cycle. Moreover, any weakening of the link market by improving their employability.
employee social security contributions between contributions and benefits could be
have been targeted to specific groups problematic in countries with high levels of • Support measures, such as unem-
such as the unemployed or younger tax evasion and undeclared work, although ployment benefits and other welfare
people, while employment incentives, better returns from State’s spending are support, which provide income replace-
often provided through a discount in associated with lower levels of undeclared ment and stabilise aggregate demand
social security contributions paid by work (European Commission, 2013a). while also ensuring that the people
the employer, were increasingly used in affected are not pushed into poverty
Belgium, Czech Republic, Spain, Malta and, 5. The impact of the and social exclusion.
in particular, in Slovakia and Luxembourg. recession on labour
market institutions • Labour market institutions’ activities,
While cyclical factors seems to better such as collective bargaining by social
explain the acceleration in the declining 5.1. A healthy labour partners, and minimum wages, can
weight of social security contributions market: balancing contribute to the resilience of labour
since the crisis, differences between employment protection markets to macroeconomic shocks.
Member States in the evolution of the legislation, activation With regard to competitiveness of
financing of social protection suggest and support firms, wages (and non-wage labour
that structural changes may play a role. costs) represent a large part of pro-
For example, tax reforms may explain why Three policy dimensions are relevant in duction costs and need to remain in
the increasing weight of general taxation terms of maintaining well-functioning line with productivity changes. Wages
in the financing of social protection con- labour markets able to resist economic directly impact aggregate demand
tinued in 2011 in Spain, alongside the sta - shocks: employment protection legisla- (and thus also labour demand) as
bilization of the economy, while it reverted tion; activation measures; and support a major component of disposable
in Germany (Chart 54). measures. The social partners, through household income. Indirectly, they
bipartite dialogue or tripartite consulta- have an impact as a source of financ-
Is a shift away from insurance- tions with public authorities, often are ing for social automatic stabilisers,
based systems an opportunity central actors in these policies. However, combating inequality and poverty.
for better inclusion? their role differs widely between Mem-
ber States and domains, in accordance Within this general framework, specific
The shift away from social security contri - with the particular national industrial rela - combinations can be effective, for exam-
butions as a source of government fund- tions systems and traditions. ple, short-time working arrangements
ing has implications for the financing of complemented by partial unemployment
social protection, and simply changing the • Employment protection legislation benefits have been found to be success-
structure of the financing of social protec - (EPL), which needs to be flexible enough ful in preventing workers from becoming
tion without modifying the rules deter- to encourage employers to hire people, unemployed by supporting them during a
mining benefit entitlements may not be but also firm enough, with respect to period when their employers face finan-
sustainable in the long-run. temporary and permanent contracts, cial difficulties (Section 5.4.2).
to avoid any abuse and prevent their
On the one hand, a shift away from use resulting in a segmented, two-tier, Before the crisis, most EU Member States
social security contributions as a financ- labour market. were undertaking policy reforms designed
ing source could pave the way for more
universal and egalitarian social benefit
systems ( ) given that insurance-based Illustration 1: The institutional balance
87
contributory systems, as notably devel- for a healthy and dynamic labour market
oped for pensions in recent decades, are
likely to have magnified labour market
inequalities and reduced the poten- EPL
tial of social expenditure for promoting
inclusion ( ).
88
Social partners
87
( ) Nonetheless, the redistributive impact of
such shift depends also on the type of taxes
increased to compensate for the reduction in
social security contributions. Unemployment ALMP, activation
( ) Hills (2003) lists fives reasons for the stuck benefits and other conditionalities,
88
up of contributory benefits: the reality welfare support Lifelong learning
of the labour market, the complexity of
the system, the insufficient accumulation
of contributions for adequate benefits,
weak link between work records and
actual contributions, weak link between Source: DG EMPL.
contributions and benefits.
73
A key choice is often between cutting On the other hand, a shift away from social • Activation measures, such as training
employee or employer social security security contributions to indirect taxes could and employment subsidies, which need
contributions depending on whether the limit the scope for indirect taxes to act as to ensure that people who become
aim is to stimulate labour demand or automatic stabilisers across the economic unemployed can remain in the labour
labour supply. In some countries, cuts in cycle. Moreover, any weakening of the link market by improving their employability.
employee social security contributions between contributions and benefits could be
have been targeted to specific groups problematic in countries with high levels of • Support measures, such as unem-
such as the unemployed or younger tax evasion and undeclared work, although ployment benefits and other welfare
people, while employment incentives, better returns from State’s spending are support, which provide income replace-
often provided through a discount in associated with lower levels of undeclared ment and stabilise aggregate demand
social security contributions paid by work (European Commission, 2013a). while also ensuring that the people
the employer, were increasingly used in affected are not pushed into poverty
Belgium, Czech Republic, Spain, Malta and, 5. The impact of the and social exclusion.
in particular, in Slovakia and Luxembourg. recession on labour
market institutions • Labour market institutions’ activities,
While cyclical factors seems to better such as collective bargaining by social
explain the acceleration in the declining 5.1. A healthy labour partners, and minimum wages, can
weight of social security contributions market: balancing contribute to the resilience of labour
since the crisis, differences between employment protection markets to macroeconomic shocks.
Member States in the evolution of the legislation, activation With regard to competitiveness of
financing of social protection suggest and support firms, wages (and non-wage labour
that structural changes may play a role. costs) represent a large part of pro-
For example, tax reforms may explain why Three policy dimensions are relevant in duction costs and need to remain in
the increasing weight of general taxation terms of maintaining well-functioning line with productivity changes. Wages
in the financing of social protection con- labour markets able to resist economic directly impact aggregate demand
tinued in 2011 in Spain, alongside the sta - shocks: employment protection legisla- (and thus also labour demand) as
bilization of the economy, while it reverted tion; activation measures; and support a major component of disposable
in Germany (Chart 54). measures. The social partners, through household income. Indirectly, they
bipartite dialogue or tripartite consulta- have an impact as a source of financ-
Is a shift away from insurance- tions with public authorities, often are ing for social automatic stabilisers,
based systems an opportunity central actors in these policies. However, combating inequality and poverty.
for better inclusion? their role differs widely between Mem-
ber States and domains, in accordance Within this general framework, specific
The shift away from social security contri - with the particular national industrial rela - combinations can be effective, for exam-
butions as a source of government fund- tions systems and traditions. ple, short-time working arrangements
ing has implications for the financing of complemented by partial unemployment
social protection, and simply changing the • Employment protection legislation benefits have been found to be success-
structure of the financing of social protec - (EPL), which needs to be flexible enough ful in preventing workers from becoming
tion without modifying the rules deter- to encourage employers to hire people, unemployed by supporting them during a
mining benefit entitlements may not be but also firm enough, with respect to period when their employers face finan-
sustainable in the long-run. temporary and permanent contracts, cial difficulties (Section 5.4.2).
to avoid any abuse and prevent their
On the one hand, a shift away from use resulting in a segmented, two-tier, Before the crisis, most EU Member States
social security contributions as a financ- labour market. were undertaking policy reforms designed
ing source could pave the way for more
universal and egalitarian social benefit
systems ( ) given that insurance-based Illustration 1: The institutional balance
87
contributory systems, as notably devel- for a healthy and dynamic labour market
oped for pensions in recent decades, are
likely to have magnified labour market
inequalities and reduced the poten- EPL
tial of social expenditure for promoting
inclusion ( ).
88
Social partners
87
( ) Nonetheless, the redistributive impact of
such shift depends also on the type of taxes
increased to compensate for the reduction in
social security contributions. Unemployment ALMP, activation
( ) Hills (2003) lists fives reasons for the stuck benefits and other conditionalities,
88
up of contributory benefits: the reality welfare support Lifelong learning
of the labour market, the complexity of
the system, the insufficient accumulation
of contributions for adequate benefits,
weak link between work records and
actual contributions, weak link between Source: DG EMPL.
contributions and benefits.
73
