Austrian labour market opens for new Member States

On 1 May 2011, the Austrian labour market opened for workers from eight new central and eastern European Member States. A recent study estimates that between 21,000 and 26,000 new employees from these countries will work in Austria each year, the majority being cross-border commuters. Most are expected to work in construction and tourism. A new law aimed at preventing anticipated wage dumping came into effect on 1 May and the social partners are content with the preparations.

Background

On 1 May 2011, the transitional period of seven years following the accession of ten new Member States to the European Union ended. This meant that workers from eight new central and eastern European Member States are now free to work anywhere in the EU.

Out of the 10 states that joined the EU in 2004, Cyprus and Malta were exempt from the transition period and were allowed free movement into Austria instantly upon accession. The free movement of workers and services now applies to workers and companies from all 10 countries, namely Cyprus and Malta as well as the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia.

Employees from Bulgaria and Romania still have no free access to the Austrian labour market. For them, the market will most likely be opened after the full seven-year transitional period that follows their accession, meaning no earlier than the beginning of 2014.

Up to 26,000 workers expected

A study (in German, 1.38Mb PDF) by the Austrian Institute of Economic Research (WIFO) expects that between 21,000 and 26,000 employees from the Czech Republic, Hungary and Slovakia (which corresponds to 0.4% of the population of these three countries) will make use of the labour market opening and come to work in Austria. Before the market opened up, about 9,400 people from these countries came each year to work in Austria. This means a maximum of an additional 16,600 workers are expected. These projections match the expectations of representatives from public employment services in these countries.

A representative of the Slovakian labour market administration, Ivan Juras, has commented that in the area of Slovakia that borders Austria, above-average movements are expected as the readiness to commute between Bratislava and Vienna has been traditionally high there. According to a report (in German, 557Kb PDF) from the organisation that monitors professionals (FAMO), potentially 6% of all employed persons, or 7,600 workers from the Slovakian border areas are migrants and commuters.

The reason for the rather low expected number of migrant workers from the eight new Member States is that many workers from those countries had already entered the Austrian labour market over the last few years, with different work permits such as those given to seasonal workers, skilled workers in defined sectors with a labour shortage, border commuter agreements and traineeship agreements. Also, in sectors where Austria is facing labour shortages and would need migrant workers, for example the care sector, the new Member States are facing shortages too.

Construction, tourism and temporary agency work most affected

The sectors expected to be most concerned by the labour market opening are the construction and tourism sectors, as well as temporary agency work. According to Josef Muchitsch of the Union of Construction and Wood Workers (GBH), about 40%–50% of all newly arriving workers will seek employment in the construction sector. The estimated 13,000 additional workers would make up about 5%–6% of the sector’s workforce of 240,000, which means the sector is likely to be able to absorb them without major difficulties.

However, the issue that concerns GBH more is that, with the newly acquired free movement of services, construction companies from those eight new Member States are also expected to enter the Austrian market. This will mean increased competition for Austrian companies and could exert a downward pressure on wages.

In the tourism sector, which has effectively been open for many years because of seasonal work permits, the labour market opening will have hardly any impact in practice; experts expect the share of migrant workers to remain constant, although bureaucracy will be eased.

The temporary agency work sector is forecast to be strongly affected, however, as foreign temporary agencies are expected to provide an increasing number of domestic companies with workers.

Law against wage and social dumping implemented

In order to prevent wage and social dumping (AT1006011I), the social partners agreed on a law that was passed by the Austrian parliament in late March and implemented on 1 May.

The bill contains penalties that will apply if minimum wages and salaries fall short of those provided for in collective agreements. The aim of the bill is to ensure fair competition between Austrian and foreign firms and to protect workers from being underpaid.

Companies will have to pay penalties of:

  • between €1,000 to €10,000 for every underpaid employee;
  • €2,000 to €20,000 in the case of recurrent underpayment or if more than three workers are concerned;
  • €4,000 to €50,000 in the case of recurrence with more than three employees involved.

When only small violations occur, companies may make delayed payments and are thus exempted from paying penalty fees. However, if a company refuses to be checked, if underpayment occurs or if documents are not available in German, administrative penalty procedures will be triggered. If very serious violations repeatedly take place, foreign employers may be prohibited from providing services in Austria and domestic employers may have their business licence removed for at least a year.

With the implementation of the law, a new system of controls was installed. The renamed finance police, formerly the KIAB (Kontrolle illegaler Arbeitnehmerbeschäftigung), an organisation set up by the finance ministry in 2002, is responsible for performing checks and controls at employers’ sites. If the finance police find violations, they will inform the newly established centre of excellence (LSDB) at the Vienna branch of the state health insurer (WGKK), which will file a complaint. This procedure applies to employees posted to Austria or those working for temporary agencies in the eight new Member States.

The wages of employees working for Austrian companies which are covered by the general social insurance law (ASVG) are to be controlled by the relevant insurance institutions themselves; in the construction sector, the holiday and severance pay fund for construction workers (BUAK) will have control.

The labour inspectorate is now also authorised to monitor compliance with respective collective agreements.

If employees are underpaid, they will not automatically receive the pay difference and will need to claim the outstanding amount at the social court themselves.

The problem of how to impose these controls on foreign firms has still not been resolved; talks are taking place at ministry level between Austria and the new Member States.

It has also been noted that wage dumping due to the incorrect classification of employees in wage groups covered by collective agreements – where, for example, skilled workers are classified as unskilled and paid less than they should get – cannot be ruled out.

Public opinion and social partner reactions

Public opinion on the labour market opening differs profoundly from that of experts and the social partners. A study from early 2011 (in German, 69Kb PDF), conducted by the opinion research institute IMAS, shows that the majority of Austrians are rather hesitant, if not afraid of the opening of the labour market. Some 70% of respondents expect a run on the Austrian labour market and think that the opening of the labour market will have a negative effect on the country.

As far as the social partners are concerned, both organised business and organised labour welcome the opening of the labour market. Representatives from both sides are of the opinion that Austria will not encounter any problems due to the preparations the country has made during the full exploitation of the seven-year transitional period.

Erich Foglar, President of the Austrian Trade Union Federation (ÖGB), states that the expected influx of workers will be acceptable. The organisation’s General Secretary, Bernhard Achitz, is content that the ÖGB has successfully communicated that employees need not be afraid of new competitors. In the construction industry, however, he thinks that fears of the labour market opening are understandable, due to the particular vulnerabilities of the sector to wage competition. Herbert Tumpel, President of the Chamber of Labour (AK), emphasises that sufficient checks and controls need to be made in order to prevent wage dumping.

On the employer side, the President of the Federal Economic Chamber (WKÖ), Christoph Leitl, emphasises the good work done by the social partners in preparing laws against wage and social dumping that will provide security for both employees and employers.

The Federation of Austrian Industry (IV) has stated that the opening of the labour market was a long overdue step, given skilled labour shortages and Austria’s recent demographic development. According to the IV’s former Head of Social and Labour Affairs, Wolfgang Tritremmel (who has recently retired), highly qualified employees willing to consider migrating have already moved to other countries that had opened their labour markets earlier, without making use of the seven-year restriction.

Bernadette Allinger, Working Life Research Centre (FORBA)

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