Social security contributions, wages and labour market feature in run-up to central bargaining

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With negotiations over a new intersectoral agreement due later in the year, the debate in Belgium in spring 2002 has focused on social security contributions, the growth of wage costs and labour market participation. On the first point, the federal government has in recent years taken measures to reduce employers' social security contributions substantially. However, employers continue to complain about their competitive position, while trade unions believe that social security benefits are too low.

The reduction of social security contributions is one of the key elements in the policy of the current Belgian federal government, which is a coalition of Liberal, Socialist and Green parties. The coalition agreement of July 1999 contained a series of measures in this area that were later implemented in detail (BE0001304F), notably: the 'social Maribel' scheme for reducing labour costs in the socio-cultural sector, the health service and social services (BE0001303N); the 'Rosetta plan' youth employment scheme, involving cuts in employers' contributions (BE9911307F); measures to increase the take-home income of low-paid semi-skilled and unskilled workers by cutting their social security contributions; and cuts in employees' contributions aimed at preventing 'unemployment traps', whereby unemployed people are discouraged from finding work because of the small difference between benefits and wages (BE9910308N). There are also many job-creation plans aimed at particular target groups among unemployed people, with their own effect on social security contributions. Furthermore, the largest source of cuts in employers' social security contributions is the 'structural decreases' that apply to the entire population of low-wage earners - table 1 below indicates the costs to the public finances of the various social security contribution schemes in operation.

The importance of reductions in social security contributions was recently confirmed in the government's January 2002 'priority memo' that outlines its policy objectives until the end of the current legislature in mid-2003 (BE0203301N). This document confirmed:

  • 'the announced additional reduction in charges of EUR 250 million, which shall be primarily used as of 1 April 2002 in particular for young people below the age of 25 and the over-50s. Moreover, a bill shall be submitted to reduce the 24 existing job-creation plans to one transparent and simple system within the available resources, with effect from 1 January 2003'; and
  • that 'it shall be examined whether the reduction of personal [employees'] social security contributions can be increased during the second half of the legislature from the current maximum of around EUR 82 per month to a maximum of EUR 124 per month, whereby the net taxable income of such employees will rise by around 4%.'

Social partner views

The government's priority memo was given a remarkably cool reception by the Federation of Belgian Enterprises (Verbond van Belgische Ondernemingen/Fédération des Entreprises de Belgique, VBO/FEB). With regard to cost reductions, the employers' organisation complained that the new cuts were not enough, especially considering the fact that the cuts in employers' costs arising from the second and third general 'Maribel' scheme (BE9703103N), introduced by the previous government, is being claimed back by the Belgian state following an EU instruction. VBO/FEB is also upset about the fact that the monitoring of unemployed people (in terms of their willingness to work, and their active job-seeking) is, according to the employers, clearly not one of the priorities of the government. This is most probably linked to the idea that if social security benefits were not paid to those who are unwilling to work, then contributions would be lower.

The trade unions are by no means enthusiastic about the government's social security policy. The Belgian General Federation of Labour (Algemeen Belgisch Vakverbond/Fédération Générale du Travail de Belgique, ABVV/FGTB) complained through Michel Nollet and Mia De Vits, its chair and general secretary respectively, that social security benefits have been systematically reduced over the last 20 years (quoted in the De Morgen newspaper on 21 January 2002). In this way, the unions claim, the insurance nature of social security is being lost. Despite the high contributions on the side of both employers and employees, a person who is sick or unemployed receives little more than the minimum income.

The most notable contribution to the debate came from the Flemish employers' organisation, the Flemish Economic Alliance (Vlaams Economisch Verbond,VEV). Philippe Muyters and Mark Andries, its chief executive and deputy director of its research department respectively, said in plain terms that ABVV/FGTB was right to complain about low social security benefits (quoted in De Morgen on 25 January 2002). According to VEV, the benefits could be higher only if the correct use of social security could be guaranteed (ie through more supervision of unemployment) and if wage restraint were maintained in order to enable higher employment and thus higher labour market participation.

Main issues

The reactions of the social partners can be considered as manoeuvres in the build-up to the talks over a new intersectoral agreement for 2003-4, due in autumn 2002. The context for these talks is the current situation with regard to social security contributions, wage costs and the labour market.

Adding together the effects of all the schemes reducing employers' social security contributions in 2001, the effect is a cut of EUR 3.7 billion, or 3.6% of the total paybill - see table 1 below. It is notable that the two measures to combat 'unemployment traps' and reduce employees' social security contributions (thus increasing the net pay of low-wage earners) represent a very modest proportion of the total. Nevertheless these measures are essential to avoid the government's 'activation' policy resulting in increased numbers of 'working poor'

Table 1. Direct budgetary costs of reductions of social security contributions, 1997-2001 (in EUR million )
. 1997 1998 1999 2000 2001
Cuts in employers' contributions 1,381 1,601 1,746 2,783 3,390
Structural decreases - - 1,057 2,346 2,805
Maribel scheme 491 649 173 - -
Low-wage decreases 362 379 98 4 5
'Rosetta plan' agreements - - - 2 70
Measures to combat unemployment traps - - - 15 12
Other job-creation plans 528 573 418 415 498
'Social Maribel' scheme 5 50 240 278 315
Cuts in employee contributions (decreases for low wage earners) - - - 95 125

Source: National Bank of Belgium (Nationale Bank van België/Banque Nationale de Belgique, NBB/BNB) Annual Report (calculation based on data from the Department of Social Security and NBB/BNB).

Wage growth in general is also an important factor. The annual technical report on the maximum available wage cost increase produced by the Central Economic Council (Centrale Raad voor het Bedrijfsleven/Conseil central de l'économie, CRB/CCE) compares the rises in Belgian wage costs with those in Germany, the Netherlands and France, as legally stipulated by Belgium's 1996 competitiveness law. This comparison is made difficult by factors such as differences in the proportion of part-time workers in each country (in 2000, part-timers made up 20.7% of employment in Belgium, 19.9% in Germany, 17.7% in France and 42% in the Netherlands). Furthermore, it should be noted that the rise in the Belgian wage cost per full-time equivalent employee is higher than the rise in the wage cost per working hour (because in Belgium annual working time has fallen less than in neighbouring countries). Nevertheless, the Council's presentation of the wage cost rises per working hour over the last three years and the forecasts for the next three years give a rather moderate picture - see table 2 below.

Table 2. Wage costs per working hour, % change from previous year, 1999-2004
. 1999 2000 2001 2002 2003 2004
Germany 1.5 % 1.6 % 2.6 % 2.8 % 3.0 % 3.1 %
The Netherlands 3.3 % 5.2 % 4.2 % 4.3 % 4.0 % 4.1 %
France 2.5 % 2.8 % 3.1 % 3.4 % 3.7 % 3.7 %
Average of above three 2.0 % 2.4 % 3.0 % 3.2 % 3.4 % 3.4 %
Belgium 2.5 % 2.4 % 3.6 % 3.2 % 3.2 % 3.2 %

Source: CRB/CCE (based on Organisation for Economic Cooperation and Development and Eurostat data).

However, looking back further, the NBB/BNB warns that: 'estimated on the basis of the wage costs per hour worked, the relative position of Belgium remains unfavourable, as wage costs over the last five years have risen a total of 16.3%, against 12.1% in the three largest neighbouring countries'.

Another point of discussion in the run-up to the talks over a new intersectoral agreement is the analysis of the labour market. The NBB/BNB states that Belgian employers do not readily recruit or dismiss employees. Fluctuations in the economic climate are generally absorbed by increasing or decreasing the working time per employee. In addition, the implementation by companies of development projects primarily depends on the expectation of being able to find suitable employees. In comparison to its largest neighbouring countries, Belgium has a notable mismatch both from a geographic and training point of view: people looking for work do not find it because they live in a different region or because they do not have suitable training, while employers still have a high level of unfilled vacancies.

Commentary

A number of fresh aspects could be introduced to the rather unyielding debate on social security contributions, wages and labour market participation, certainly from an employee perspective:

  • social security contributions. If the abuse of social security contributions by unemployed people who do not want to work is a problem, then the abuse of the system of temporary unemployment - whereby companies may temporarily place their regular workers on unemployment benefit - by employers is also a problem. The system is meant for companies facing a 'force majeure' situation (ie unforeseen circumstances beyond their control), but in practice is is widely used to achieve staffing flexibility in times of recession and low production. In this respect it would be interesting to determine an indicator of 'abnormal use of temporary unemployment';
  • wage costs. If international competitiveness is the basis for determining the margins for wage costs, then the only rational choice for each country is to keep wage costs below or equal to the expected wage costs in the neighbouring countries. The 1998 'Doorn declaration ' by unions from Belgium, Germany, Luxembourg and the Netherlands (DE9810278F) rightly complained that such reasoning would lead to a 'negative wage spiral'; and
  • labour market participation and mobility. Up until now, the mobility of employees has mainly been stimulated by making (public) transport cheaper. This leads to widespread traffic congestion. Far less attention is paid to the problem of 'registration taxes' for new homes. As a result of the high registration taxes in Belgium, people are more or less stuck with the house that they originally purchased. Moving house for a new job is consequently very expensive. The mobility of companies on the other hand is much greater. Not because they are so flexible and dynamic by nature, but because they enjoy much more favourable conditions (Jan De Schampheleire, TESA-VUB).
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