Mutual Learning Programme 2011 Peer Reviews

MUTUAL LEARNING PROGRAMME:

PEER COUNTRY COMMENTS PAPER - SLOVAKIA

Young unemployed: help them into self- or wait until they have long term status?

Peer Review on ’Pathways to support young people into self-employment’ , November 2011

A paper submitted by Michal Páleník in consortium with GHK Consulting Ltd and CERGE-EI

Mutual Learning Programme 2011 Peer Reviews

This publication is supported for under the European Community Programme for Employment and Social Solidarity (2007-2013). This programme is managed by the Directorate-General for Employment, Social Affairs and Equal Opportunities of the European Commission. It was established to financially support the implementation of the objectives of the in the employment and social affairs area, as set out in the Social Agenda, and thereby contribute to the achievement of the Lisbon Strategy goals in these fields. The seven-year Programme targets all stakeholders who can help shape the development of appropriate and effective employment and social legislation and policies, across the EU-27, EFTA- EEA and EU candidate and pre-candidate countries. PROGRESS’s mission is to strengthen the EU contribution in support of Member States' commitments and efforts to create more and better and to build a more cohesive society. To that effect, PROGRESS will be instrumental in:  Providing analysis and policy advice on PROGRESS policy areas.  Monitoring and reporting on the implementation of EU legislation and policies in PROGRESS policy areas.  Promoting policy transfer, learning and support among Member States on EU objectives and priorities.  Relaying the views of the stakeholders and society at large.

For more information see internet: (http://ec.europa.eu/social/main.jsp?catId=327&langId=en)

The information contained in this publication does not necessarily reflect the position or opinion of the European Commission.

Mutual Learning Programme 2011 Peer Reviews

CONTENTS

1 LABOUR MARKET SITUATION IN THE PEER COUNTRY ...... 4 2 ASSESSMENT OF THE POLICY MEASURE ...... 5 3 ASSESSMENT OF THE SUCCESS FACTORS AND TRANSFERABILITY ...... 6 4 QUESTIONS ...... 7 ANNEX 1: SUMMARY TABLE ...... 8

1 LABOUR MARKET SITUATION IN THE PEER COUNTRY

This paper has been prepared for a Peer Review within the framework of the Mutual Learning Programme. It provides information on Slovakia’s comments on the policy example of the Host Country for the Peer Review. For information on the policy example, please refer to the Host Country Discussion Paper. The Slovak labour market has been greatly affected by the current economic crisis. After three years of real GDP growth at 5 to 10 %, in fixed prices from 2002 to 2008 (peaking at 10.5 % at 2007), there was a decline of 4.8 % in 2009, and an increase of 4 % in 2010. This productivity decline mostly affected employment; generally did not decrease. During production increases, employment in Slovakia was rising 2 to 3 % annually; this was followed by a 2.53 % and 1.38 % decrease in 2009 and 2010. The labour market in 2009 was in a very different situation than in 2008: shortages of possible employees in 2008 were replaced by increasing unemployment in 2009. Apart from the negative development of employment in Slovakia, development in other European countries influenced Slovak workers abroad. Before the crisis, 7 to 15 % of Slovakia's working population was working abroad, mainly in the neighbouring countries, and in the UK and Ireland. Proper data on workers abroad are missing and the wide range of estimates is due to different methodologies and estimators. During the crisis, some of the workers who were abroad returned and some registered as unemployed (although the exact figure is unknown). Another specific characteristic of the labour market in Slovakia is the difference amongst the regions. Bratislava and Northwestern Slovakia have very good labour markets with low unemployment and high labour possibilities (even though worsened by the crisis), Southern and Eastern Slovakia have very high unemployment and long term unemployment, low employment possibilities and low growth. In some counties unemployment is over 30 % and in some villages reaching 100 %. During the crisis very few new jobs were created. Graduates who are dependent on newly created jobs were affected the most. Therefore, unemployment rose rapidly. During the early 2000s, youth unemployment was reaching 40 % and then gradually decreased to 17 %. During the crisis it increased to 34.3 % (3rd quarter 2010), which is the third highest figure in the EU. Youth unemployment figures are also driven by demographic and educational changes. A typical demographic cohort in the seventies was around 100,000 children, in the early 1990s it was only 50,000. This drastic decrease in population was not followed by a decrease in educational capacities. The capacities in secondary schools was slightly reduced, however the number of students in universities is increasing. The percentage of students undertaking standard university studies has grown from 18 % in 2000, to 34 % in 2010. The percentage of full time workers studying at universities is increasing even more. Given the increasing proportion of youth studying (and thus being economically inactive), the youth unemployment rate is misleading. For example, youth unemployment with elementary is 64 % (reaching 80 % before), which is the highest figure in the EU.

However, this figure is mainly caused by almost everybody studying at secondary schools and thus minimising the economically active population with elementary education.

2 ASSESSMENT OF THE POLICY MEASURE

Youth unemployment started to be a visible problem with the crisis. Under the law which sets out current labour policies, youth and graduates are considered to be vulnerable groups. Vulnerable groups are defined in Law 5/2004 on labour services, which describes the functions of labour offices, defines registered unemployed persons, and defines active labour market polices, etc. Overall, there are 15 types of vulnerable groups, the largest being the long term unemployed, individuals over 50 years old and graduates. Graduates are defined in paragraph 8 section (1) a) of this law as: persons below 25 years of age, who finished schooling less than two years ago and do not yet have regular paid employment. This definition is relatively strict. The age limit of 25 years usually disqualifies university graduates, since under the current education system, it is quite common to finish university at the age of 25. A maximum two year period for graduate status means that many graduates fall under the category long-term unemployed. Long term unemployed is defined as a person not having a for 12 months out of the previous 16 months. The most strict conditions are put on those who do not have a regular paid job. The interpretation of this is not clear and sometimes graduates' summer jobs are qualified as regular jobs. As this definition says, not many unemployed are officially seen as graduates. Graduate placement is defined at paragraph 51 of the Labour Services Law. Such placements are available to any unemployed under 25 years of age regardless of the definition of graduate in this law. This placement is at a maximum 6 months long and 20 hours a week (half time job). During the placement, the graduate works for an employer and receives a subsidy at the level of the living minimum (currently around EUR 190, for comparison the net minimum is around EUR 275). During this period, the graduate does not have an and is still registered as unemployed. An employer who wants to employ a graduate under these conditions must sign a contract with the labour office. This contract only includes provisions of employment-like behaviour towards the graduate and promise of no of personnel due to recruiting the graduate. There are no obligations to keep the graduate, and the employer does not have any extra wage costs associated with the graduate. Currently the Ministry of Labour, Social Affairs and Family is considering introducing provisions to keep graduates in employment with the employers after the placement. Self-employment benefit, as an active labour market policy measure, is defined in paragraph 49 of the labour services law. Anybody registered at a labour office for at least three months can apply for this benefit. Applications must include a business plan for the enterprise and applicants will receive before running the enterprise. The amount of this benefit varies between regions: for regions with higher unemployment the benefit is higher. Currently the maximum value is around EUR 4,000 (around five times the average wage), and the minimum is around EUR 2,600 (around 3.4 times the average wage).

The main obligation for the beneficiary is to run the enterprise for at least two years. If this obligation is not fulfilled, the beneficiary must return part of the benefit. Most of the newly self-employed fulfil this obligation, so this tool has an almost 100 % success rate (measured by two years working period). Around 15,000 out of the now 400,000 stock of registered unemployed receive this benefit annually. The process of approving applications is not unified across the regions and administrations. According to field information, some of the business plans are only formally approved, whilst some receive a proper critique and enhancement by professionals. Also, basic entrepreneurship training varies. However, given the benefit's amount and the necessary social contributions of the newly self-employed, public finances will benefit from this measure even if the newly self-employed individual closes the business after the required two years. Currently there are efforts to change this benefit in order to improve the effectiveness and the long term effect of the benefit. Definitive changes are not yet known. Graduates and the young unemployed can apply for this benefit, as can any unemployed individual. The three month waiting period can usually be filled with the necessary administration and training needed for self-employment.

3 ASSESSMENT OF THE SUCCESS FACTORS AND TRANSFERABILITY

The portion of self-employment out of total employment is steadily rising, from 5 % in 1998 to currently 15 %. However, part of this growth is due to the de facto 50 % lower and social contributions paid by the self-employed compared to employees (current proposals for tax reform intend to increase self-employed social contributions to the level of the employed, but due to parliamentary elections in March 2012 it is highly unlikely this reform will pass). This leads to negative perceptions of the self-employed, as the general belief is that many are just abusing the system in order to work in standard working positions, but on self-employed contracts (instead of standard employment contracts). Also, promotion of self-employment as a form of enterprise is very limited in secondary schools. Another difficulty for self-employment is the low level of market possibilities in many regions: unemployment is high, so many of the unemployed do not need additional services (because they have free time to provide such services themselves), their income is low (so they do not buy many goods and services) and overall business possibilities are also very limited. Therefore, it is questionable whether the sole creation of new small enterprises without boosting the local economy will have long term stability and effect. Another problematic part of the Slovak labour market is long term unemployment. Around 50 % of unemployed people have been unemployed for more than a year. This figure has changed slightly in recent years, although Slovakia has always had the highest (or second highest) figure in the EU. It is a problem relating to : it is not possible to expect people who have not been working in previous years to be successful entrepreneurs. Greater training and education needs to be available for the long term unemployed.

A newly unemployed person, who has worked for a longer period, has a relatively high income. S/he receives two to three (or more, depending on collective bargaining) months of upon leaving his/her job; are for six months at 50 % of his/her previous income (before social contributions) and in addition, possible self- employment benefit (which is at around five times the average wage). So an average employee has around 8.5 monthly salary to start his/her enterprise within three months. Therefore, labour offices should focus more on the newly unemployed who still have working skills and potential. However, labour offices pay very little attention to the newly unemployed: they do not receive proper advice or guidance, most of the active labour market policy (ALMP) measures are applicable only to those unemployed for more than six months. Unemployment insurance has relatively demanding conditions: one has to have been employed for 24 months out of the last 36 to qualify for this benefit. These conditions disqualify seasonal jobs and most youth and graduates. Some measures need to be taken to make this benefit available to more of the unemployed. If a person receives unemployment benefit, he can receive part of his benefits at once if he starts to be employed. This option is not promoted and used. Also, the conditions for this are not very favourable to the person: an individual can receive only half of the remaining benefits, for at most half of the period for which he has rights for unemployment benefits. If the period of remaining unemployment benefits is longer, he will receive zero.

4 QUESTIONS

 How is the local economy boosted so that the newly self-employed have enough long term business possibilities?  Is there a process of selection of business plans for the newly self-employed? How are business plans with no visible success potential eliminated or improved?  Is there any long term support for small enterprises (especially in relation to non core business aspects (accounting, HR, loans, etc.), for which small enterprises do not have core staff?  What are the conditions under which the unemployed can receive unemployment benefits?

ANNEX 1: SUMMARY TABLE

Labour market situation in the Peer Country

 Youth unemployment decreased over the past ten years but drastically increased to almost 40 % during the crisis.  Unemployment was rising due to the decrease of employment in Slovakia and return of workers from abroad.

Assessment of the policy measure

 Graduate placement gives basic opportunities, however its effectiveness is questionable.  Self-employment benefit allows graduates (and others) to start businesses; however, more attention should be paid to guidance and support.

Assessment of success factors and transferability

 Missing long term business opportunities in regions with high unemployment and low purchasing power is a burden to successful individual small enterprises.  The current tax system gives a negative image to self-employment.  Unemployment benefits do not give enough resources to encourage start-up of enterprises.

Questions

 How is the local economy boosted so that the newly self-employed have enough long term business possibilities?  Is there a process of selection of business plans for the newly self-employed? How are business plans with no visible success potential eliminated or improved?  Is there any long term support for small enterprises (especially in relation to non core business aspects (accounting, HR, loans, etc.), for which small enterprises do not have core staff?  What are the conditions under which the unemployed can receive unemployment benefits?