Cuts in social welfare

The Government Programme includes several proposals to cut unemployment benefit. While most of these cuts concern earnings-related unemployment benefit, some also affect the basic unemployment allowance and labour market support paid by the Social Insurance Institution (KELA).

While the Government intends to implement all of these cuts during 2024, it currently appears that they will take effect gradually. The first Government proposal on this subject will be completed by 9 October 2023.

An example of multiple cuts affecting the same individuals or families

Wages of EUR 2,500 per month
Earnings-related unemployment benefit of EUR 1,515 per month
+ child increase of approximately EUR 150 per month

Employment condition
12 months of work before unemployment
(previously 6 months)

Earnings-related unemployment benefit cut after 2 months
- EUR 303 per month

Earnings-related unemployment benefit cut after 8 months
- EUR 379 per month

Waiting period
- EUR 141 for 2 days

Child supplement
- EUR 150 per month

Changes in the employment condition

  • A longer employment condition for earnings-related benefit
  • The employment condition of eligibility for unemployment benefit will be based on prior earnings instead of working time

From the Government Programme

The prior employment requirement for earnings-related unemployment benefit will be prolonged to 12 months and based on prior earnings instead of working time.

Current practice

A worker qualifies for earnings-related unemployment benefit if he or she has been a member of an unemployment fund and has satisfied the employment condition by working for a period of about six months before unemployment begins. The Government is now seeking to double this period to one year. The employment condition would also be based on prior earnings instead of working time. This means that the employment condition would no longer be reckoned according to the number of working hours weekly, but the monthly wages paid.

SAK has proposed easing access to earnings-related unemployment benefits for casual employees, but the Government has adopted a diametrically opposing policy that will hamper access to unemployment benefit for a growing number of employees. This is coupled with measures that make it harder to secure permanent employment and easier to dismiss employees on individual grounds.

Impact

  1. The tougher employment condition particularly victimises employees who have just begun working and those in casual employment. In other words, those in greatest need of protection.
  2. The new condition would impede access to future earnings-related unemployment benefit, as this would require at least one year of working and unemployment fund membership before losing a job, instead of the current six months.
  3. Use of prior earnings as a factor would reduce the earnings-related benefit payable to casual and part-time workers.


Benefit cuts

  • Child supplements in unemployment benefit will be abolished
  • The benefit portion that is protected in part-time working will be abolished
  • Eligibility for unemployment benefit will begin only after phasing of outstanding holiday compensation
  • Earnings-related benefit will already be reduced after two months of unemployment
  • The waiting period for unemployment benefit will be prolonged

From the Government Programme

The level of unemployment benefit will be graduated, with an increase in the waiting period from 5 to 7 days, the abolition of child increases and the EUR 300 portion that is protected when working part-time, and a return to phasing of any outstanding holiday compensation payable when employment ends.

Current practice

Earnings-related unemployment benefit is generally higher than the basic unemployment allowance or labour market support.

Earnings-related unemployment benefit currently remains the same for the entire duration of unemployment. This benefit would in future be cut by 20 per cent after some two months of unemployment and by nearly a further 5 per cent after eight months. The Government would simultaneously reduce the unemployment benefit of every claimant by increasing the waiting period from 5 to 7 days. This refers to the initial claiming period at the start of unemployment or temporary layoff for which no benefit is paid at all.

Unemployment benefit is adjusted in line with any earnings of a claimant for casual or part-time work. The first EUR 300 of these earnings is currently a protected portion that does not affect the unemployment benefit payable. This adjustment is made for about 40 per cent of all recipients of earnings-related unemployment benefit, and the proportion is even higher in many industries organised by SAK affiliates. A similar adjustment may be made in basic daily allowance and labour market support. Adjusted unemployment benefit helps people in part-time work to make ends meet when no full-time work is available. Since taking effect in 2014, the protected portion rule has also encouraged the unemployed to take up part-time and casual employment.

Unemployed claimants with children under 18 years of age are eligible for a child supplement in earnings-related benefit, basic unemployment allowance and labour market support. These child supplements vary between about EUR 150 and 285 per month, depending on the number of children.

Though previously applied in unemployment benefit, phasing of outstanding holiday compensation was abolished in 2013 as part of a national framework agreement. Phasing of outstanding holiday compensation means that any holiday compensation paid in lieu of outstanding annual leave at the end of full-time employment prevents the payment of unemployment benefit for the duration of the phasing period.

Impact

  1. All of the cuts in earnings-related benefit – prolonging the waiting period, reducing benefit in stages over time, and abolishing child supplements and the protected portion – may also impact the same claimant.
  2. Even the 20 per cent reduction in benefit after two months of unemployment already makes a major dent in the livelihoods of many claimants.
  3. Prolongation of unemployment is penalised by gradually reducing earnings-related unemployment benefit. This has a particularly powerful impact on claimants with fewer prospects of finding work, such as those for whom no suitable work is available in the district, where training is required for the necessary work skills, or where there is a need for rehabilitation.
  4. Abolishing the protected portion in adjusted benefit will not help to increase the availability of full-time work. It may instead make the unemployed less willing to accept short-term employment and more prone to full-time unemployment.
  5. Phasing of outstanding holiday compensation complicates the unemployment benefit system and unfairly targets employees who are unable to take annual leave during their employment. The phased period of ineligibility for unemployment benefit is often longer than the untaken leave for which the holiday compensation was paid.
  6. Abolishing child supplements will reduce the livelihoods of unemployed claimants with children by EUR 150–285 per month.


Changes that undermine the status of the elderly

  • Wage-subsidised employment will no longer count towards the employment condition for earnings-related benefit
  • Benefits will be reduced for unemployed elderly workers

From the Government Programme

Age-related exceptions will be abolished and wage-subsidised employment will no longer count towards the employment condition.

Current practice

Wage subsidies are paid to an employer for a period of 5–10 months in order to hire unemployed workers who are otherwise difficult to place in employment. While the wages of a worker in subsidised employment comply with the collective agreement, only 75 per cent of the work done counts towards the employment condition of eligibility for earnings-related unemployment benefit. The notion of age-related exceptions refers to the right of unemployed workers over the age of 58 years to work arranged by a local authority or an employment promotion service, and maintaining the previous level of earnings-related unemployment benefit.

Impact

  1. Age-related exception provisions seek to help the elderly to find work and secure their livelihood. Abolishing this subsidy will undermine the prolongation of working careers.
  2. No longer counting subsidised employment towards the employment condition is wholly inconsistent with the principle that all work is valuable and progressive.
  3. A rising number of elderly workers and unemployed workers in subsidised employment only qualify for labour market support instead of earnings-related unemployment benefit.


Job alternation leave to be abolished

From the Government Programme

The job alternation leave system will be abolished.

Current practice

Job alternation leave refers to a period of leave from regular employment lasting for no longer than six months. Job alternation compensation amounting to 70 per cent of earnings-related unemployment benefit is payable for this leave. An unemployed jobseeker is hired as a substitute. The conditions of eligibility for job alternation leave have been tightened and the compensation has been reduced over the years. These cuts have led to a fall in uptake of job alternation leave from about 20,000 to 5,000 employees.

SAK has frequently proposed improvements in the job alternation leave system, especially in order to help the elderly cope at work. SAK has also submitted its own proposal that would enable employees over 60 years of age to move on a temporary basis from full-time work to 80 per cent working time under a new part-time allowance.

Impact

  • With minimal impact on central government expenditure, job alternation leave has provided an important respite from working duties for many employees, and has given them the strength to cope for longer in the world of work.
  • Serving as a job alternation leave substitute has given many employees an opportunity to gain experience in duties that they could not have accessed in any other way. This has also increased their employment rate.


Adult education benefit to be abolished

From the Government Programme

While the abolition of adult education benefit is not explicitly stated in the main body of the Government Programme, it nevertheless remains evident from an appended table. This benefit will be discontinued as of 1 August 2024.

Current practice

Adult education benefit is a form of financial support granted to employees or the self-employed for studies that support vocational development. Employees and the self-employed may rely on adult education benefit for one or more periods of study totalling no more than 15 months over a working career. This benefit also enables studies for entire degrees or shorter periods of in-service or student training. The benefit payable depends on income.

Impact

  1. The Government Programme forecasts that its measures will bring 8,000 new employees into the job market. This is a minimal number overall, with an imputed impact that fails to consider such aspects as the benefits of enhanced skills, such as longer working careers and coping at work. Everyone who studies also has a job to which they can return.
  2. The abolition of benefit will reduce participation in training, which will in turn exacerbate the labour shortage and lead to a deterioration in skills.
  3. The abolition will encourage individuals to seek student financial aid, with rising costs met from the central government budget. Some employees also change their working sector through unemployment, and these costs have been omitted from the calculation model.
  4. There is a strong correlation between skills and prolongation of working careers. Adult education benefit is a long-term investment in the future that falls beyond the scope of the limited measuring criteria used by officials at the Ministry of Finance.