Active and passive labour market policies in Austria and Hungary

Continental system of flexicurity

Austria is considered to be part of the so-called ‘Continental System’ of flexicurity that includes also Germany, France, Luxembourg and Belgium. It is characterised by intermediate-to-low flexibility, intermediate-to-high security and intermediate-to-high taxation. These countries rely extensively on insurance-based benefits and have stricter employment protection legislation. Although union membership is in decline in most countries, the unions remain strong and are regularly included in processes of decision-making and implementation. The continental countries tend to have higher levels of long-term unemployment than the Anglo-Saxon countries but, thanks to higher levels of redistribution via taxes and transfers, they have lower numbers of people in, or at risk of, poverty. ⁴

Political developments

Since the mid-1980s Austria was ruled by a so-called grand coalition between the two major parties, the Social Democratic Party and the conservative People’s Party. In 2000 a major change took place when the conservative People’s Party formed a coalition with the right-wing Freedom Party and later with its spin-off ‘Alliance Future Austria’ (Bündnis Zukunft Österreich). This was seen by commentators as a change towards a more neo-liberal policy line bypassing the traditionally strong social partners. 2007 marked the comeback of the grand coalition and a line of politics aimed more at pacifying both sides of industry. It comes, therefore, as no surprise that implementation of the flexicurity strategy was undertaken in a very balanced way, exchanging increased flexibility for increased security in other fields.

Organisation of unemployment protection

Austria’s protection against unemployment is an insurance system based on federal legislation and managed by the public employment service (Arbeitsmarktservice – AMS), which is also responsible for measures of active labour market policy. It is not part of the state administration but an administrative body in its own right, featuring a three-tiered system comprising one federal organisation, nine organisations at the federal state (Länder) level, and 99 regional organisations. One important element is the social partners’ involvement in public employment service’s activities at all three levels. Thereby the representatives of Austria’s Economic Chamber and the Federation of Austrian Industry on the employers’ side, and the Chamber of Labour as well as the Austrian Trade Union Federation on the employees’ side, play a major role in the design of labour market policy and in supervising the organisation. A tripartite administrative board is established at federal level. ⁵ This organisational set-up ensures the involvement of the social partners in the administration of the labour market policies, hence the transposition of the flexicurity concept.

The unemployment insurance is financed via contributions of the employees and their employers, who pay each 3% of the wages. ⁶

The compulsory unemployment insurance covers the majority of employees in Austria, only marginal part-timers earning less than EUR 425.70 a month (threshold defined for 2017) and civil servants are exempted from unemployment insurance. Since 2008 self-employed persons working with free service contracts – that means those persons, who work for a definite or an indefinite time for a client without personal dependency – are also covered by law. Since 2009 other self-employed persons may opt into voluntary unemployment insurance under specific conditions. ⁷

General remarks and prerequisites

Unemployment benefits and unemployment assistance benefits are the most important cash benefits paid by the unemployment insurance scheme in Austria. Unemployment benefits are paid for a limited period of time and are followed by unemployment assistance, which may be claimed for an unlimited period of time if certain conditions are met (indigence, means test on own and spouse’s/partner’s income). Although the unemployment insurance system features minimum-income components (supplementary amount to increase net-replacement rate), it fails to guarantee any minimum benefit. There is a ceiling on the amount of cash benefits disbursed. ⁸

Unemployment benefit (Arbeitslosengeld)

There are three prerequisites which have to be met to ensure entitlement to unemployment benefit:

Minimum insurance period: First-time claimants need at least 52 weeks of unemployment insurance-covered employment within a reference period of 24 months prior to asserting their claim. Young adults under 25 years of age only need a minimum of 26 weeks within a reference period of 12 months, and individuals who have already received benefits need 28 weeks of unemployment insurance-covered employment within the past 12 months (or a total of 52 weeks of such employment within the past 24 months) to requalify for unemployment benefits.

Ability to work: Unemployment insurance cover only relates to workers capable of working. In the event of invalidity or occupational disability, benefits are claimed from social pension or health insurance schemes. While an unemployed worker’s pension application is processed (usually to assess invalidity), she/he may be eligible for a cash benefit from the unemployment insurance (advance pension payment).

Willingness to accept reasonable suitable employment: This is the criterion where most changes took place and it will be covered in a subchapter of its own.

Maximum claim duration for unemployment benefits depends on the insurance record accrued within legally defined (and, under certain conditions, extendable) reference periods and on the age of claimants at the time of losing their jobs. It starts with 20 weeks and is increased to 52 weeks for claimants with a long insurance record and who are over 50 years of age. It is extended even longer upon the completion of occupational rehabilitation measures or when participating in labour market policy measures (training courses, measures of integration).

As they are insurance-based benefits the benefit levels depend on previous income from work. Unemployment benefits are composed of the basic benefit amount and, where applicable, of family supplements and additional supplements. The basic benefit amount is 55% of the average net income. ⁹ Benefit recipients who need to support family members will receive an additional family supplement of EUR 0.97 per day. If the amount of unemployment benefits thus calculated falls below EUR 29.66 (2017) per day, ¹⁰ a supplement up to a net replacement rate of 60% of the previous net income will be granted. This ceiling rises to 80%, if family supplements apply. Unemployment cash benefits may be increased by this supplement to no more than the currently applicable equalisation supplement reference rate (EURO 889.84 in 2017).

Unemployment assistance (Notstandshilfe)

Upon exhaustion of unemployment benefits, unemployment assistance is granted for 52 weeks at a time. This benefit is renewable and may be paid until the individual concerned may claim a pension.

Unemployment assistance amounts to 95% of the previous basic amount of the unemployment benefit plus 95% of the previous supplement to unemployment benefits, unless this basic rate exceeds EUR 889.94 (2017 equalization supplement reference rate). In all other cases, unemployment assistance amounts to 92% of the basic amount of previous unemployment benefits.

Unemployment assistance is only granted to those in need and is therefore also means tested against the spouse’s or partner’s earnings. However, such a means test ignores parts of the spouse’s/partner’s monthly earnings (up to EUR 647 in 2017 and increasing with every dependent the spouse or partner has to support). The exemption limits for the partner’s earnings and for dependents are higher for persons aged over 50. ¹¹

Means-tested minimum income scheme

The unemployment benefits and assistance are complemented and supplemented by the means-tested minimum income scheme (Bedarfsorientierte Mindestsicherung – BMS), which was introduced in 2010/2011, and which constitutes a key policy to avoid poverty and social exclusion. Due to the complex competencies to legislate an agreement the federal government and the state government set out the key aspects of this minimum income scheme to be transposed into the relevant federal and state laws. The minimum income scheme comprises benefits to ensure people’s means of subsistence and housing needs, and to afford protection in case of sickness, pregnancy and childbirth. As a flat-rate benefit (= minimum standard), it is designed to ensure cover for recurring expenses on food, clothing, personal hygiene, household effects, heating and electricity, as well as on personal needs to enable claimants to enjoy appropriate social and cultural participation. The minimum rates were, in 2016, EUR 837.76; for couples (per person), EUR 628.32; for children, EUR 418.88; and for children below the age of 18, EUR 226.20. ¹² The benefit can be granted also partially if the income or the unemployment benefit/assistance is below the minimum level.

As no agreement between the state governments had been reached by the end of 2016 the unified national minimum level may be undercut. To date two states have deviated from the hitherto existing unified approach and have lowered the payments for persons that have been granted asylum (Upper Austria), ¹³ or will introduce a lower benefit for persons that have lawfully resided in Austria for less than five years in the last six years, as well as a cap on the maximum overall payment to families with a large number of children (Lower Austria). ¹⁴

Special problem: Willingness to accept reasonable suitable employment

Before 2004 the prerequisites for the willingness to accept reasonable suitable employment were defined in a rather narrow way. Suitable employment was, inter alia, that which did not endanger the future employment in the previous occupation of the currently unemployed. Therefore, the unemployed only had to take up jobs more or less similar to their previous occupation until the period for claiming the unemployment benefit had expired.

The labour market reform of 2004 changed this significantly and redefined the notion of reasonable suitable employment. Since then, during the first 100 days of unemployment the old provisions apply. Additionally, during the first 120 days, employment in another field of work or in a part-time job is considered reasonable only if the payment offered amounts to 80% or more of the last pay. During the remaining period of unemployment benefit receipt, employment in another field of work or in a part-time job is considered reasonable only if the contributory pay amounts to 75% or more of the last pay used as an assessment basis for unemployment benefit calculation. This no longer applies at all when the entitlement to unemployment benefit has run out: The long-term unemployed who are on unemployment assistance (following expiry of unemployment benefits) can be reasonably expected to accept even low-wage jobs. In such a case, wages must be at least equivalent to the minimum wages defined in the applicable collective agreement.

Commuting is considered acceptable if it does not extend 2 hours per day (or 1.5 hours for part-time work).

Introduction

The Ministry of Labour, Social Affairs and Consumer Protection considers as the most important measures of active labour market policy the following: ¹⁵

Increasing the transparency of the market by processing various items of information with the aid of state of the art information technology (job matching, careers information and advice).

Activating measures

Active labour market policies applied by the public employment service focus on three types of measures: promotion of employment, initial and continued training as well as the provision of support. The resources spent on skills training and qualification are considered high in international comparison, with roughly two thirds of the labour market policies funding budget, and almost three quarters of newly subsidised persons accounting for this area. More than one third of all persons registered as unemployed are included in an active labour market policy programme. The respective funds have been increased primarily for disadvantaged groups in the labour market (young people, older workers, non-Austrians, individuals with health-related employment disadvantages) in recent years. ¹⁶

One of the key elements of the public employment service’s counselling and guidance services is the (back-to-work) action plan (Betreuungsvereinbarung) agreed between clients and public employment service case workers. The action plan defines the situation at the outset, the targets set, the barriers to achieving the targets and the steps to take to overcome these barriers, division of activities between the client and the case worker, and a timetable. It applies for three or four months. ¹⁷

In 2013, a higher amount of unemployment benefit for participation in training measures was introduced. An extra amount (flat rate EUR 1.97 a day in 2017) is due in addition to unemployment benefit during participation in training measures.

Strategic priorities are services for young people (transition to school from work, training guarantees and apprenticeship training, production schools), for women (fostering training in engineering, programme for returners, systematic development of competencies), older workers, people with health issues (re-training benefits), persons from migrant backgrounds, as well as services for claimants of means-tested minimum income and to the chronically long-term unemployed. Subsidies like the journey-to-work subsidy, grants for moving costs, interview grants and childcare subsidies as well as the subsidies to childcare facilities, are also part of the measures to facilitate employment. Subsidies for individuals to promote their occupational mobility such as allowances for courses and course related costs, and substance allowances are also provided with a special emphasis on supporting skills enhancement in the field of health, social care and child care. Other special programmes are targeted at workers who have no higher education qualifications (skilled workers’ grants) and women in crafts and engineering. Large sums are also earmarked as subsidies for training establishments or training participants as well as for special facilities like integration enterprises or for employers upskilling employees or training apprentices. The supra-company training programme under the ‘training guarantee’ introduced in 2008 is also part of the labour market measures as well as a number of youth coaching and training assistance programmes.

Some of the measures of the public employment service are aimed at job creation. The service also financially supports the creation and the running of so-called socio-economic enterprises. They are designed to integrate the long-term unemployed and other hard-to-place groups into the labour market by creating near-market, fixed-term jobs. This is intended to promote the sustainable (re)integration of hard-to-place individuals into the job market. Usually, the term of employment is one year. This period may be extended in certain cases – provided that the jobs in the socio-economic enterprises retain their transitional character. Unemployed workers faced with special employment impediments (long-term unemployment, age, disability, care duties, social maladjustment, former drug addicts, ex-prisoners, homeless, etc.) can be employed in non-profit employment projects aimed at integrating disadvantaged groups into the labour market. If they are employed in the regular labour market their employers may be subject to an integration subsidy.

A wage top-up scheme is intended to help integrate unemployed workers for whom this scheme provides a new incentive to take up work; it serves to ensure a higher income for these workers while they are in low-paid jobs. The scheme was first revised in 2009 and is used to encourage people with poor job prospects (jobseekers aged over 50, returners and people with disabilities) to move into work. A revision in 2014 led to a lowering of the age limit to 45.

Sanctions

If an unemployed person fails to accept a vacancy or a training measure offered, she/he will lose entitlement to unemployment benefits (unemployment assistance) for as long as she/he refuses to cooperate. In any case, she/he will lose entitlement for a minimum period of six weeks; in repeated cases this period will be extended to eight weeks. Claim duration will be reduced by the period in question (e.g. 30 weeks reduced by six weeks = 24 weeks of claim duration).

If workers are to blame for losing their jobs or they quit their jobs voluntarily, they will not be entitled to unemployment benefits or unemployment assistance in the first four weeks thereafter. Claim duration is not reduced but postponed.

Activation measures for minimum income claimants

Persons claiming minimum income for a longer period of time are assisted to achieve (re-)entry into the labour market. A special exemption limit for returners has been introduced for this purpose, which may also be claimed by those taking up work for the first time. This exemption limit means that any additional money earned is not fully set off against minimum income. As former beneficiaries are no longer obliged to repay benefits, the incentive to (re-)enter the job market becomes stronger thereby.

Cash benefits for persons in employment

The Austrian unemployment insurance provides for an extensive number of cash benefits for persons in employment.

Part-time allowance for older workers to help to keep older workers in employment. In agreement with their employers, older workers may reduce their working hours and claim wage compensation for earnings lost by the working hours thus reduced. Working time must be reduced by 40-60%, the specific arrangements being up to the parties of the employment relationship. Wage compensation must be at least 50% of the difference between the wage paid prior to the reduction of normal working hours and the wage paid for the reduced working hours. Employers are then entitled to claim refunds from the public employment service for part of the additional expenditure. The percentage of additional expenditure to be refunded totals 90% in cases where reduced working hours are consumed continuously over an agreed period of part-time work and 50% in cases where reduced working hours are consumed in one single period.

Further training benefits during educational leave equalling the amount of unemployment benefits to which a given claimant would be entitled.

Integration measures

In February 2012 and until 2016, a labour market initiative was launched for persons with health impairments as well as older persons. The objective is to prolong the active employment of a total of 200,000 persons in this target group by 2016. In this initiative, incentives were created in order to encourage businesses to extend the employment of older workers. In addition, the labour market initiative also implemented measures in order to maintain employee health and to allow occupational rehabilitation for people who previously had to draw disability pensions. ¹⁸

In order to combat youth unemployment, the ‘job guarantee’ for youths was introduced in 2016. According to it, no person under 25 years of age shall be unemployed for more than six months. Those who do not find a job immediately receive an offer of an education/training programme or subsidised employment from the public employment service. The education and training guarantee introduced as early as 2008 applies to youths aged 15 to 19. Some 40% of youths each year start dual apprenticeship training, that is, practical training in a business combined with theoretical instruction at a vocational school. Those youths who do not find an apprenticeship in a business are guaranteed an apprenticeship in an industry-wide organisation. If necessary, they can complete a full dual education/training programme in an apprenticeship workshop, which is considered equivalent to on-the-job training. The ultimate goal still is helping them to find an apprenticeship in a business. ¹⁹

Earning additional income

While on unemployment benefits or unemployment assistance, claimants may earn an additional income up to the marginal earnings threshold (EUR 425.70 a month in 2017) without losing their entitlement to these cash benefits. If the additional income from temporary employment (i.e. less than four weeks of work agreed upon or performed) exceeds the marginal earnings threshold, 90% of the net income above the threshold is set off against unemployment benefits or assistance benefits. Thereby the persons on benefits shall be encouraged to (re-)enter the labour market.

Eastern European system of flexicurity

Hungary is considered to be part of the ‘Eastern European system’ of flexicurity that includes also the Baltic States, Poland, Czech Republic, Slovakia, Slovenia, Romania, and Bulgaria. To put it simply, they are characterised by insecurity, intermediate-to-high flexibility and intermediate-to-high taxation. This classification is an oversimplification. However, all in all, we can say that compared with most Western European countries, employment protection legislation is less strict ²⁶ and social assistance in these countries is weak. The countries in this system tend to have high long-term unemployment rates, with unemployment particularly high among older people. ²⁷

Political background

In the socialist period Hungary did not have an unemployment insurance system, as full employment – at least on a formal level – was the official doctrine. The first forms of unemployment benefits had already been introduced before the regime change in as early as 1986. During the transition in 1989 the unemployment rate skyrocketed, therefore the introduction of a real system of unemployment benefit was inevitable. This was shortly followed by active LMPs and by the Act No. IV of 1991 on Promoting Employment and Providing Assistance for the Unemployed. ²⁸

The political landscape in Hungary has changed significantly in the last decade. In 2002 a social-democratic/liberal government prepared the accession and actually joined the EU in 2004. In the 2006 election the social-democratic/liberal government was re-elected but broke up in 2008 followed by elections that brought the right-wing Fidesz as the strongest party. Its main goal was to restart economic growth. Prime Minister Viktor Orbán discarded the idea of a welfare state and asserted that the Hungarian economy must be a work-based economy thereby shifting public employment policy away from paying benefits towards public employment and deregulation of the labour market. The so-called ‘Hungarian Work Plan’ (Magyar Munka Terv) of 2011 identified the extremely low level of employment as the major problem of the Hungarian economy. ²⁹ It set the goal to create 1 million new workplaces within the next ten years by the deregulation of the labour market, improvement in the competitiveness of the workforce and support for the creation of new workplaces and legal employment. ³⁰

By 2014 seemingly significant improvements had been made in reducing unemployment (from 11.4% in 2010 to 7.1% in 2014) and generating economic growth (reaching 3.5% in 2014, the top value among EU Member States). But the growth has been very unequal: the wealth of the top 20% of society grew significantly, while the ratio of people living below poverty line increased and is currently one of the highest in the EU. ³¹ The decrease in unemployment was also based on the so-called ‘public work programme’ (közmunka program), which favours the unemployment statistics, but has been strongly criticised for several reasons (see in detail below). Another major undisclosed reason of the relatively low level of unemployment is the massive and increasing number of people working abroad. ³² There are no official statistics, but according to estimates at least 500.000 Hungarians work in another country, which counts to 8-9% of the people in economically active age.

Organisation of the protection against unemployment

The structure of the Hungarian authorities responsible for labour market underwent several significant changes in the last decade. It started out as the Public Employment Service with some 20 county labour centres and 170 branch offices. The labour centres had been prestigious state authorities with distinct responsibilities at county level, managed and coordinated by the Employment Office (Foglalkoztatási Hivatal). In 2011, they were renamed and amalgamated with the county government offices to become more embedded in local government policies and actions. The structure became more complex, when the Ministry of Interior took charge of public works programmes and began working directly with county labour offices in planning and running such programmes. In 2012 the Central Employment Office, the Health and Safety Inspectorate (OMMF) and the National Institute of Vocational and Adult Education (NSZFI) were merged to form the National Labour Office (Nemzeti Munkaügyi Hivatal). ³³ This also resulted in the county-level branches of the health and safety inspectorate being merged with the county government offices, resulting in significant cuts in staff numbers.

After the re-election of the Orbán government the National Labour Office was closed in 2015 without any consultation with the social partners. The responsibilities of the National Labour Office were distributed to two ministries. The Ministry of National Economy took charge of employment and labour related issues as well as of the county labour centres, which are organised in the frame of the National Employment Service (Nemzeti Foglalkoztatási Szolgálat). ³⁴ It was argued by the government that the restructuring would increase the efficiency of labour market processes and help keep unemployment low; the new structure was considered necessary to help the government achieve its target of full employment. ³⁵ Adult training is currently organised by a newly established office, called National Professional and Adult Vocational Training Office (Nemzeti Szakképzési és Felnőttképzési Hivatal).

The regular reorganisations of the authorities have not served the transparency and efficiency. The European Commission expressed its concern that ‘the overly complex and centralised allocation of responsibilities following the recent reform of the public employment service (PES) is likely to reduce its effectiveness.’ ³⁶

The legal framework of the labour market policies

The protection against unemployment is organised as a compulsory social insurance scheme based on two statutes, namely the Act IV of 1991 on Promoting Employment and Providing Assistance for the Unemployed (1991. évi IV. törvény a foglalkoztatás elősegítéséről és a munkanélküliek ellátásáról) and the Act III of 1993 on social administration and social benefits (1993. évi III. törvény a szociális igazgatásról és szociális ellátásokról). It is financed via contributions of employees (1.5% of the wages) and by the employer who pays a social tax of 27% on top of the wages covering all branches of social security (pension, health and unemployment). Unemployment insurance covers not only employees but also self-employed persons who pay contributions of 1.5% of their declared monthly earnings. ³⁷

Jobseeker’s Benefit (Álláskeresési járadék) ³⁹

The Jobseeker’s Benefit underwent significant changes in 2012. Previously the benefit duration had two parts. The first period lasted for a maximum of 91 days, the second term for another 179 days. In the first term the amount of the Jobseeker’s Benefit was 60% of the previous wage (capped with 120% of the minimum wage) and in the second term it was fixed at 60% of the minimum wage. To be eligible jobseeker had to be employed for at least 200 days during the previous four years. ⁴⁰

This regime was changed significantly and the conditions were made stricter in 2012. Now to be eligible for the Jobseeker’s Benefit one has to prove prior employment and paid contributions for at least 360 days during the last three years. ⁴¹ The benefit amounts to 60% of the claimant’s average pay in the four previous calendar quarters, but is capped at the official minimum wage (i.e. HUF 111,000 gross [EUR 354] in 2016). ⁴² If the jobseeker’s average wage cannot be determined, the benefit equals to 130% of the national minimum wage. The nominal level of this benefit comes up to 33% of the at-risk-of-poverty threshold. ⁴³

Jobseeker’s Benefit can be received for a minimum of 36 and a maximum of 90 days. For every 10 days the claimant worked in the previous three years they are entitled to one day of benefit, independently on the kind of ending their employment. The extremely short duration of this unemployment benefit is striking. The maximum duration of three months is by far the shortest period in the EU. ⁴⁴ Even if someone has worked and paid contributions for twenty years, this person will be entitled only to three months’ benefit. This short duration may push jobseekers into barely efficient public work or force them to accept jobs below their qualification level resulting in reduced productivity. ⁴⁵

To encourage jobseekers to find a job as soon as possible the law opens up the possibility to claim 80% of the remaining amount of the benefit left over from the period as a lump sum payment.

Jobseeker’s Aid before Pension (Nyugdíj előtti álláskeresési segély)

Older persons encounter particular difficulties in finding a new job after becoming unemployed. This allowance intends to help this group. The Jobseeker’s Aid before Pension followed an interesting path as it was actually cancelled in 2005, but reintroduced in 2012. ⁴⁶

This benefit is payable to jobseekers who are within five years of reaching the applicable retirement age (between 62 and 65 years) and is payable for the entire period until they get entitled to pension. The person concerned first has to exhaust the Jobseekers’ Benefit and cooperate with the employment office. Another condition is to have a sufficient service period to be entitled to an old-age pension (usually 20 years of service). The allowance amounts to 40% of the beneficiary’s earlier average wage with a maximum of 40% of the minimum wage, i.e. HUF 44,400 (EUR 142) in 2016.

In Hungary there is currently no possibility of early retirement with the exception of women who have at least 40 years of service (of which there are at least 32 years of employment). Special exceptions apply to those working in public service (ministries, police, army, etc) and to some artists.

Means-tested social benefits

Social benefits financed from the central budget are provided to make up the other income of people in need. ⁴⁷ The earlier system of regular social aid was abolished in 2015. The law currently knows four forms of means-tested financial benefits, namely (1) Old-Age Assistance (időskorúak járadéka); (2) Employment Substituting Assistance (foglalkoztatást helyettesítő támogatás); (3) Assistance in case of Damage to Health and Child Care Assistance (egészségkárosodási és gyermekfelügyeleti támogatás); and finally (4) Home Care Assistance (ápolási díj). These social benefits serve the goal to ensure a minimum standard of living for those persons of active age who are not employed.

As a passive labour market means the Employment Substituting Assistance is of particular relevance. This is for people of working age who are able to work, but are unemployed. ⁴⁸ The precondition of the entitlement to this kind of assistance is the exhaustion of the Jobseekers’ Benefit. Those persons, who are not entitled to Jobseekers’ Benefit, because they do have not completed a sufficient prior employment period, can claim Employment Substituting Assistance only after cooperating for at least one year with the employment office. ⁴⁹ The person has to cooperate with the employment office, accept appropriate jobs and participate in the public work programme. A further condition of this kind of assistance is that the entire income of the persons and their families does not reach the subsistence level and they do not own any property (beyond the accommodation they are living in). The assistance is paid at a fixed amount equal to 80% of the minimum old-age pension, i.e. HUF 22,800 (EURO 73) per month in 2015. This is an alarmingly low level of assistance.

For those people who are not entitled to Jobseeker’s Benefit or to Employment Substituting Assistance, the municipalities can provide assistance in the form of so-called ‘Local Assistance’ (települési támogatás). Local Assistance can be regular or exceptional (i.e. in case of birth or death), in cash or in kind. These are intended to be the last means of providing some kind of aid for the people in need. The idea, namely that municipalities are nearer to the people and can better decide on their indigence, is right. The real reason behind shifting the responsibilities to the municipalities though, is that they are expected to finance the assistance on their own and receive only partial compensation from the government. However, they certainly are not in the financial position to provide regular assistance to people in poverty.

Earning additional income

The payment of Jobseeker’s Benefit is terminated if the recipient performs a wage-earning activity (except short-term activity not exceeding 120 calendar days during which the payment is suspended) or if he/she accepts a training placement with regular support amounting to the sum of the minimum wage.

The payment of Jobseeker’s Aid before Pension is suspended for the period during which the recipient performs a wage-earning activity (regardless of its length).

Analysis of the passive labour market policies

The main challenge in the regulation of the various benefits in the case of unemployment is to strike the delicate balance between the provision of an appropriate level of benefits in order to replace the income of the people concerned and prevent them from poverty on the one hand, and to motivate them to find another employment, on the other hand. ⁵⁰ Pushing unemployed people into employment certainly complies with the basic idea of flexicurity to make transitions between employments easier. ⁵¹ However, the extremely short maximum duration of the Hungarian unemployment benefit does not comply with the contributory logic of the insurance-based unemployment benefit system. The designation of the unemployment benefit as Jobseeker’s Benefit reveals that the idea of insurance faded into the background and this benefit is clearly used to put strong pressure on the people to take up employment.

Public work

Performing public work in one or the other form has been used since 1987. However, their role remained limited until 2000, when – as part of a workfare reform – the task of organising such projects was handed over to local municipalities, with around 90% of wage costs covered by a central government subsidy. Eligibility rules for unemployment assistance were tightened and recipients were obliged to participate in public works for at least 30 days a year. ⁵²

A new scheme was introduced in 2009 when the social-democratic/liberal government presented the ‘Road to work’ programme. It was not a crisis response action, but a reframing of the social benefit system, with a strong commitment to a workfare model. Most of the social benefit recipients were transferred to a new type of benefit for inactive persons. The benefit recipients were obliged to take public work or they lost the benefit of inactive persons. ⁵³

The most recent, more radical reform took place in 2011. The declared aim was to introduce a uniform system and involve more participants in the system for the same funding. The number of public workers has significantly increased in the last couple of years. Some 235,000 and 309,000 people were employed in this kind of work in 2011 and 2013, respectively. ⁵⁴

Prior to 2011 the amount of their payment equalled to the minimum wage. ⁵⁵ After 2011, public workers have received 78% of the minimum wage for full time work. The idea behind this wage reduction was to stronger motivate people to look for a job in the real labour market. Also, the possibility to work part-time was introduced. Most of the public works are non-commercial, physical tasks (gardening, cleaning road slides, parks, etc.) and the participants are obliged to accept any kind of job the municipality offers them independently of their educational level and skills. The declared policy behind public work aims at activating people and thus breaking their benefit dependency. ⁵⁶ Nowadays those able to work will lose their benefits after 90 days of unemployment, unless they agree to do public works.

The public work programme has been criticised for several reasons. One of the major criticisms is that productivity of public work is not a priority; the work is often pointless and thus demoralising. Therefore this kind of work does not serve its dual goals, namely to support the people to get back into the real labour market and produce public value. ⁵⁷ Empirical studies provide an even more significant criticism, i.e. that public work is not efficient to lead people back to the first labour market. ⁵⁸ Only 10% of those participating in the public work programme has received a ‘normal’ employment thereafter, while this is 24% for those who have not participated in such programmes. ⁵⁹ This failure has several grounds, inter alia, the isolated employment of public workers, due to which they do not come into touch with actual employers. ⁶⁰ The risk is very high that people become trapped in public work. ⁶¹ The last available statistics of the National Employment Office from 2012 demonstrates that the proportion of those receiving an employment in the labour market after participating in an active labour market policy was 57.2% compared with the 11.6% of those performing public work. ⁶²

Another major issue is that the public work programme has high costs and takes financial resources away from other active labour market measures. In 2014, public work cost HUF 231.1 billion, while all other active labour market measures came up to HUF 32 billion. Even if we take the EU subsidy to labour market policies into account (HUF 71.3 billion), these are less than the half of the cost of the public work programme. ⁶³ The comparison with other European states reveals that in 2012 Hungary spent the highest proportion of all costs of the active labour market measures for direct job creation. ⁶⁴ This statement is also true, if we consider also the passive labour market policies. This data proves that the dimension of the Hungarian public work programme to handle long-term unemployment is unique in Europe.

Other activating measures

Next to the public work programme, two major measures have been used to activate unemployed persons, namely subsidies for the employers by state supplement to the wage and the training of the unemployed. An empirical study proved, that both measures are more successful in terms of getting unemployed people into employment, than public work. ⁶⁵ These measures are more beneficial in case of short-term unemployed persons, but less successful for long-term unemployed.

Employment subsidies are a common, but currently underused measure of the labour policy. The so-called ‘Start’ programmes between 2004 and 2013 (mainly financed by the EU) intended to support the young and older workers, the long-term unemployed and those coming back after childcare. ⁶⁶ The employers who employed unemployed persons in the frame of this programme, received tax and social security relief. This programme has been closed and not been replaced by another subsidy schemes. There are now definitely not enough subsidies to efficiently support the unemployed to get back to the labour market. Particularly worrying is the situation of mothers, older workers and the Roma people, who need special targeted active labour policy measures. ⁶⁷

Vocational education and training has not been the focus of the labour policy measures. In 2014, the government started a pilot project that aims at improving the dual vocational education. ⁶⁸ In 2015, a ministerial decree regulated the training subsidies and the subsidies in case of the creation or improvement of a vocational training establishment within a company. This measure rather serves as a direct subsidy for the wage costs of the newly employed persons, than an actual training programme. The insane degree of centralisation and the poor efficiency of this measure are best demonstrated by the fact that the Minister personally decides on every claim for this subsidy. ⁶⁹