Social partners face up to challenge of the benefit trap

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Following the conclusion of the 1999-2000 intersectoral collective agreement, in early 1999 the Belgian social partners are seeking to find a joint solution to the "benefit trap", whereby unemployed people are discouraged from finding work because of the small difference between benefits and minimum pay. The social partners with to resolve the issue without government intervention, though the Higher Council for Employment is advocating specific solutions.

In November 1998, the Belgian social partners reached a deal on an intersectoral collective agreement for 1999-2000 (BE9811252F). Conferences of the two main trade union confederations - the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV) and Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV) - subsequently approved the agreement by majority vote, and it was formally signed in December. The union confederations are satisfied that they have successfully negotiated commitments with employers without government intervention. One of the issues concerned is the "unemployment trap" or "benefit trap".

Benefit trap

The social partners wish to propose their own solutions to the benefit trap problem so as to avoid an unwelcome ministerial initiative. The problem centres on the insufficient differential between unemployment benefits or the "minimex" (revenu minimum de moyens d’existence) guaranteed income (a subsistence level benefit for people not covered by social security insurance) and full-time or part-time net wages, which is though to discourage unemployed people from returning to work. Unemployed people are not tempted into accepting job offers if the pay level is too low or if taking up the job means losing social benefits. Such benefits might include higher child benefit, supplementary benefits paid to unemployed people aged over 50 and tax reductions. In addition, unemployed people would be unlikely to accept a job offer if losing the new job meant receiving lower unemployment benefits, the situation faced by fully unemployed people who accept part-time jobs.

A recent study has revealed that a third of the beneficiaries of social benefits are in fact workers who have experienced such situations (BE9811155F).

To avoid the benefit trap, the social partners want to find a solution by themselves that would be socially acceptable and that would not increase benefits in general or wages. They want to avoid:

  • reducing unemployment benefits. A few years ago, the government opted for such a policy, and supplementary benefits awarded to those accepting a part-time job to avoid unemployment were reduced or abolished altogether by a ministerial decision. This led to a rise in the number of "benefit trap" victims. Moreover, according to the 1998 report on Federal employment policy published by the Ministry for Employment and Labour (BE9812254F) the level of benefits in Belgium is low in comparison with other European Union countries; and
  • increasing the waiting period for benefits for young people, which has already been raised from nine to 12 months and has had the same effect as the previous measure in increasing the number of people claiming social welfare.

Since the social partners agreed that minimum wages could not be raised, as employers already considered them to be non-competitive, ways had to be found to increase the net income of workers on the minimum wage (a monthly gross salary of around EUR 1,075 for full-time employment). They therefore agreed to ask the Central Economic Council (Conseil Central de l'Economie/Centrale Raad voor het Bedrijfsleven) and the National Labour Council (Conseil National du Travail/National Arbeidsraad) to draw up proposals. On 6 January 1999, the two institutions agreed on a tax-credit formula for workers on the minimum wage.

New recommendations

Meanwhile, the Higher Council for Employment (Conseil Supérieur de l'Emploi/Hoge Raad van Werkgelegenheid), a body of experts chaired by the Minister for Employment and Labour (BE9708114N), has published a report on this question for the government. After analysing the situation, it has submitted its recommendations, with measures designed to encourage unemployed people, as well as people with disabilities and those on early retirement, to return to work. As well as recommending that unemployment benefits be left untouched, it is proposing the following:

  • abolition of the 13.07% individual social contribution paid by those on a minimum wage;
  • abolition of the supplementary benefits paid to unemployed people, including increased child benefits and tax reductions for workers with dependent children; and
  • strengthening control over the availability of unemployed workers for work and increasing sanctions, as proposed by the Minister in October 1998 (BE9811155F).

The Higher Council for Employment has also put forward a series of positive incentives, including training and improving childcare. Lastly, it recommends that companies should make an effort to employ workers aged over 50 and not demand higher qualifications than those actually required for the post.

For its part, the FGTB/ABVV is against the abolition of the workers' social contribution since it would endanger social security, in particular for the low paid, if added on to the cuts in employers' contributions already decided recently. Instead, it favours increasing workers' net income through direct fiscal measures, such as tax reductions, which it believes would be fairer in view of the imbalance that exists between taxation on labour and capital. However, this option has already been criticised in the Labour Ministry's report, which claims that the tax credit system is a burden on public finances and a disincentive for workers or their partners to take up a job. In addition, it maintains that the system is unattractive for the lower paid, either because the employer can take this benefit into account and keep wages low, or because with this credit the worker would lose the tax advantage attached to low pay. It would then become a "low wage trap".

The Ministry's report calls for caution in all the solutions examined in order to avoid substituting new traps for the old ones.

Commentary

The social partners must now wait for the results of the research carried out by the two bipartite national institutions, the Central Economic Council and the National Labour Council, to have the means of analysis required for them to formulate their own points of view.

Although the employers' side has already expressed its agreement with the Higher Council for Employment's proposals, it wants to maintain independent negotiations and prefers a joint agreement with the unions to ministerial decisions imposed without preliminary consultation.

Certain proposals made by the Higher Council have already been enacted as administrative measures and it is expected that the government will want to legislate swiftly to implement the EU Employment Guidelines defined at the Vienna European Council on 15 December 1998 (EU9812141N). (Philippe Dryon and Estelle Krzeslo, Point d'Appui Travail-Emploi-Formation)

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