Innovation and training key to future employment strategies

In October 2006, the Austrian Institute of Economic Research presented a ‘white paper’ on national employment strategies, which had been commissioned by the social partners. The paper presents some strategies for reducing overall unemployment in the economy. It suggests putting the emphasis on technological progress and higher quality of production, rather than higher production rates supported by low wages. The social partners have generally reacted positively to these suggestions.

On 23 October 2006, the Austrian Institute of Economic Research (Österreichisches Institut für Wirtschaftsforschung, WIFO) presented a ‘white paper’ on long-term national employment strategies. The paper entitled ‘Towards higher employment via economic growth based on innovation and qualification’ (366Kb PDF) had been commissioned by four major Austrian social partners and sponsored by the Austrian National Bank (Österreichische Nationalbank, ÖNB) and other public and private institutions. During 2005–2006, several dozens of WIFO experts drafted this strategy paper, which is based on 22 partial studies on growth, the labour market and economic policy.

Strategic measures

According to the WIFO researchers, the pace of economic growth currently envisaged for Austria will not be sufficient to reduce unemployment levels in the long term. Higher economic growth, however, will remain the key leverage to increase employment levels and to reduce the number of unemployed people. The WIFO studies reveal that technological progress and higher quality of production should be the guiding principles, rather than higher production rates supported by low wages.

The paper identifies 11 key elements for driving change, with a focus on redesigning the Austrian innovation system from a technology receiver to a technology supplier as well as a thorough reform of the national education and training system. These strategic elements are translated into eight target-oriented packages of measures. The paper recommends an implementation of the overall strategy in three stages:

• A ‘kick-off period’ will begin from 2007 to 2009. During this stage, any further increase in the unemployment rate should be prevented, notably by bringing young and older unemployed people into gainful employment. During this limited transition period, a low-wage sector should also be set up, partly in order to encourage people who find themselves in the informal sector of the labour market to work in the regular economy. Furthermore, further training should be available to these people with the aim of eventually moving them into regular full-time employment.

• A ‘reform stage’ should follow from 2009 to 2015, when Austria’s ranking within the top quality group of countries for the production of goods and services should be achieved. In order to reach this objective, Austria must attract qualified labour, in particular through the active integration of immigrants and the promotion of their education and by upgrading the qualifications of low-wage workers.

• From 2015 onwards, during the ‘high-tech stage’, technological progress and quality improvement, based on an overall upgrading of qualifications, are expected to be the main sources of economic growth.

Policy proposals

In order to underline this staged overall strategy to secure the country’s economic growth in the medium and long term, WIFO has explored virtually all areas of economic policy and, consequently, submits a series of proposals, among which two appear to be the most influential. First, the institute proposes a comprehensive tax reform aimed at reducing the overall tax burden within the coming years, which should focus on several issues, namely:

• tax relief, in particular for low-wage earners;

• stronger reflection on the external effects of taxation in general;

• reducing marginal tax rates to the lowest possible level, where high tax rates jeopardise decisions in favour of investments and employment;

• an increase in the real estate, gift and inheritance tax.

Secondly, the paper recommends an immediate, comprehensive and cost-saving administrative reform and a redefinition of relations between the federal state, the provinces (Länder) and the municipalities in order to avert parallel government responsibilities. Further privatisation of public utilities at province and community level and an increased mobilisation of private funds for research and social concerns represent options for financing the additional expenditures, in particular in the education system, and the proposed tax cuts and social insurance contributions.

Social partner views

Initially, the social partners from both sides of industry approved the presentation of the white paper as an important strategic document for the future design of Austria’s economic policy. Both the Chamber of the Economy (Wirtschaftskammer Österreich, WKO) and the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) expressed their willingness to examine all proposals put forward by WIFO. However, a closer inspection of the white paper’s contents suggests that the trade unions will find it more difficult than employers to accept many of the proposed strategies, in particular those focusing on major tax exemptions and social contribution reductions for employers and those aiming at the further privatisation of companies. With respect to the proposed greater emphasis on ‘high-tech’ production at the expense of the low-wage segment of the economy, the social partners’ approval of the white paper seems to be nonetheless unanimous.

Georg Adam, Institute of Industrial Sociology, University of Vienna