Operation of the Labour Fund assessed

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Poland's Labour Fund was created in 1990 as an institution to finance benefits for people losing their jobs, as well as vocational activation programmes for those looking for work and/or threatened by job loss. The difficulties entailed by the country's economic reforms have brought about a deepening imbalance in the disbursement of the Labour Fund resources. While the Fund has been able to soften the negative impact of job losses in non-profitable industries, this has occurred at the expense of programmes for the active counteraction of unemployment.

The Labour Fund (Fundusz Pracy) has been in existence since 1 January 1990. It is a state-operated dedicated fund administered – since 1 April 2002 – by the Minister of Labour and Social Policy. Its main objective is to finance benefits for people losing their jobs and vocational activation programmes for people looking for work and/or threatened by job loss. Labour Fund money is entrusted to self-governing bodies at the district and county levels (the county employment offices) which then disburse benefits to the entitled persons and finance programmes for the active prevention of unemployment.

Revenues

The Labour Fund derives its revenues from:

• contributions paid by employers, presently pegged at 2.45% of the basis for calculating social insurance contributions (ie the wages of their employees). The share of employers' contributions in the overall revenues of the Labour Fund has fallen from 84.4% in 1999 to 81.7% in 2000 and 65.1% in 2001. According to preliminary estimates for 2002, contributions will account for 60.2% of the Labour Fund’s aggregate revenue;

• subsidies from the national budget. These accounted for 12% of the Labour Fund’s revenue in 1999, 13.7% in 2000, and 31.4% in 2001, with the forecast figure for 2002 standing at 36.9%; and

• other revenues, including interest accrued on funds held in the bank accounts of employment authorities, repayment of instalments and interest for loans extended out of the Labour Fund, and fees paid by employers employing foreign nationals. These revenues accounted for 3.6% of the combined revenue in 1999, 4.6% in 2000, and 3.5% in 2001. It is expected that in 2002 income from such sundry sources will make up 3.3% of the Labour Fund’s combined earnings.

In 2000, the Labour Fund, faced with a rise in expenditure on pre-retirement allowances and benefits (PL0211108F), found it necessary to take out a loan. As a result, lending to the Labour Fund continued into the following years, with another factor contributing to this borrowing lying in the inability of the national budget to contribute more to the Labour Fund’s operation.

Expenditures

With the assets assembled by it, the Labour Fund has been able to finance:

• unemployment benefits paid out by the county employment offices (these benefits are obligatory in nature). The share of these expenditures in total spending by the Fund stood at 48.9% in 1999, 50.8% in 2000, and 45.9% 2001, with the planned figure for 2002 standing at 44.6%;

• pre-retirement allowances and benefits paid out by the county employment offices (these are also obligatory payments). These accounted for 20.9% of the Labour Fund’s total spending in 1999, 32.0% in 2000, and 39.7% in 2001, and according to plans for 2002, 42.6% of the Labour Fund’s combined spending will be devoted to this purpose. It should be noted that this proportion is a steadily growing one in the breakdown of Labour Fund spending, and the desire to stem expenditures for this purpose was one of the factors informing an amendment of the legislative Act regarding employment and counteraction of unemployment in 2001. Among the changes thus brought about, the possibility of new beneficiaries becoming eligible for pre-retirement benefits was done away with as of January 2002, and the rules determining entitlement to, and collection of, the unemployment allowance and the pre-retirement benefits became more strict; and

• active forms of counteracting unemployment, including training, intervention works, public works, special programmes, loans extended for the start-up of business activities and for creating new jobs etc. Certain exceptions aside, such expenditures are of a facultative character. They accounted for 19.2% of all Labour Fund spending in 1999, 11.0% in 2000, and 7.1% in 2001, while the plans for 2002 provide for 5.7% of all Labour Fund expenditures to be devoted to this purpose.

Among other expenditures by the Labour Fund, the most important item is pay and social insurance contribution refunds for employers recruiting young people on the basis of contracts for employment for vocational training.

Implementation of the legislative Act regarding facilitation of employment for school-leavers has translated into additional demands on the Labour Fund. Under this statute, the Labour Fund is assigned additional duties with regard to pension and accident insurance contributions for employers recruiting school-leavers (in formal terms, these refunds are made by the national budget by way of the Labour Fund). These contributions will also be refunded to those school-leavers who open their own businesses. This will lead to an increase in obligatory disbursements out of the Labour Fund, leaving it with fewer resources for financing new initiatives for the active counteraction of unemployment, which are already small.

Given the fact that obligatory expenses account for a very large proportion of all Labour Fund spending (some 90%), the county self-governing bodies are left with very few possibilities as regards deciding how the money passed on to them is used. In practice, all they can do is draw up their own budgets for active counteraction of unemployment within the meagre amounts available for that purpose.

Major Labour Fund beneficiaries

As indicated by the breakdown of Labour Fund spending, its beneficiaries can be divided into three categories.

The first, and basic, group comprises those unemployed people who are eligible for benefits as well as persons collecting pre-retirement benefits of assorted descriptions.

The second group is composed of employing entities who receive Labour Fund support in respect of:

• employing young people on the basis of employment contracts and providing them with practical instruction in a given vocation, with the wages and social insurance contributions of such young employees reimbursed on an obligatory basis; and

• retaining unemployed people for the purpose of intervention works, public works, or professional activation of school-leavers, whether on the basis of cooperation with county employment offices (which direct the workers to the employer) or of creating (with the use of loans) new jobs for unemployed people.

The third group of Labour Fund beneficiaries comprises employment authorities, which can devote some resources provided by the Labour Fund to the financing of their own activity, especially as regards paying out benefits to unemployed people and to other entitled recipients.

Assessment of the Labour Fund's operation

The available information suggests that the Labour Fund, in its practical operation, has become a passive entity whose essential role boils down to the disbursement of unemployment benefits. From this perspective, the original objectives of the Labour Fund are not being fulfilled. The original premise was that the contributions-derived revenue of the Labour Fund was to be used solely for the financing of unemployment benefits; in practice, meanwhile, the contributions have been used since 2000 also to cover at least some pre-retirement benefits.

The increasing sums earmarked for pre-retirement benefits of various kinds have been bringing about a situation where funds originally assigned for active forms of combating unemployment have been diverted for the former purpose. The pre-retirement benefits have also eaten up all savings achieved by the Labour Fund thanks to the more stringent rules governing unemployment benefits (PL0210107F).

Commentary

The Labour Fund has been serving an important function as regards alleviating the negative impact of economic and social transformations in Poland. The means by which its resources are distributed, however, gives rise to some disquiet, and forecasts concerning execution of the restructuring and privatisation programmes provide grounds for believing that the imbalances in this area will continue to grow.

At the same time, it should be pointed out that, at present, only 18% of registered unemployed people are entitled to benefits, while the funds made available for their vocational activation are far from adequate, both in terms of needs and in comparison with international standards in this area. (Rafał Towalski, Institute of Public Affairs (Instytut Spraw Publicznych, IPA) and Warsaw School of Economics (Szkola Główna Handlowa, SGH)).