Government plans to reform part-time work scheme for older employees

The Austrian government introduced a scheme to facilitate part-time work among older employees in January 2000, since when increasing numbers of workers have participated. Since the cost of this measure to favour the labour market participation of older people has exceeded all expectations, in autumn 2002 the government announced plans to amend the relevant legislation in order to reduce the number of workers who are eligible, in line with the recommendations from experts.

In January 2000, the coalition government of the conservative People’s Party (Österreichische Volkspartei, ÖVP) and the populist Freedom Party (Freiheitliche Partei Österreichs, FPÖ) introduced a scheme to encourage part-time work among older workers (Altersteilzeit) (AT0110203F). The aim of introducing this form of progressive retirement (TN0109184S) was to keep older employees in the active labour force by offering them the opportunity to reduce their weekly working hours, while receiving some compensation for the lost pay and not damaging their social insurance entitlement. The government’s goal, however, was not only to promote older people's participation in the labour market, but also to relieve financial pressure on the pensions system, since the number of older employees who were taking early retirement - either by choice or otherwise - had been notably increasing.

Contrary to the expectations of the Ministry of the Economy and Labour, which initially calculated that some 1,000 older employees would make use of the new opportunity to work part time, the actual number of older employees participating in this scheme had reached 17,236 by the end of July 2002, with more than 1,000 new participants per month in recent times. In 2002, there has been a total of some 23,000 beneficiaries of the scheme up to August, and its costs have run to more than EUR 300 million during the year. Experts at the Austrian Institute of Economic Research (Österreichisches Institut für Wirtschaftsforschung, WIFO) and the Chamber of Labour (Arbeiterkammer, AK) have stated that the expenditure arising from the scheme is disproportionately high in relation to its actual labour market effects. The total public financial means for active labour market policies amounts to EUR 580 million for 2002. In response to this, in autumn 2002 Martin Bartenstein, the minister for the economy and labour affairs, announced his willingness to reform the scheme in order to decrease the number of older employees eligible.

The current legislation

Part-time work as a means of preventing unemployment among older employees is regulated by the 2000 amendments to §37b of the Labour Market Service Act (Arbeitsmarktservicegesetz, AMSG) and §27 of the Unemployment Insurance Act (Arbeitslosenversicherungsgesetz, ALVG). These provide for the right to conclude collective agreements, plant agreements between management and works council, or agreements between management and an individual employee on this issue. They also define the prerequisites for introducing part-time work for older employees. The key provisions are as follows (AT0008228F).

• The part-time scheme can be applied to women from the age of 50 and men from the age of 55 until the early retirement age (which is 56.5 and 61.5 and respectively). Thus, these older workers can work part time under the scheme for a maximum duration of 6.5 years. However, participants in the scheme must have made 15 years of contributions to unemployment insurance within the previous 25 years.
• The working time of full-time workers must be reduced to 40%-60% of the standard working week, and a proportionate reduction is also possible if the employee works at least 80% of the standard week.
• A collective agreement, a plant agreement, or an individual contract must be concluded, containing the following stipulations:
  
  1. when shifting from standard working time to part time, an employee is granted compensation for loss of income of at least 50% of the reduction in income resulting from the shorter working time. There is, however, a ceiling for the amount of compensation, which is set at the upper limit of earnings liable to social insurance contributions (Höchstbeitragsgrundlage in der Sozialversicherung) (AT0110203F), currently EUR 3,270;
  2. the amount of social insurance contributions the employer is obliged to pay, as well as the amount of severance pay the employee is entitled to receive after termination of the employment relationship, both continue to be calculated on the basis of the standard working time, regardless of the employee’s shift to part-time work; and
  3. the employee’s working hours may be unequally distributed over the period of part-time employment, if this is provided for by a collective agreement.

• The employer receives a subsidy for this kind of part-time work (Altersteilzeitgeld) from the Labour Market Service (Arbeitsmarktservice, AMS), which compensates for the surplus social insurance contributions paid, up to 100% of the previous contributions.

The reform plans

Due to the problems of financing this scheme, Minister Bartenstein has proposed several measures devised to restrict access to the scheme, which should cut the costs by about EUR 70 million for 2003:

• in accordance with the 2000 reform of the pensions system (AT0008228F), the age from which employees are entitled to enter the part-time scheme should be increased to 51.5 for women and 56.5 for men (instead of 50 and 55 respectively);
• the possibility of flexible distribution of work over the period of part-time employment should be abolished. This, in particular, aims to rule out arrangements under which employees continue to work on a full-time basis for a certain period, such that they accumulate compensatory time off that enables them to enter de facto retirement earlier;
• employers should again be obliged to employ additional workers to fill the working time freed up by those employees participating in the scheme. This obligation was abolished in July 2000. It is to be reintroduced because the employment-creation effect of the scheme has proved very limited without this obligation; and
• employees should be entitled to participate in the scheme only if they have worked continuously on a full-time basis for at least six months. This restriction aims to prevent employers from abusing the scheme by recruiting employees on a full-time basis for the sole reason of channelling them quickly into the part-time scheme in order to receive the subsidies for participation in it.

Commentary

The part-time scheme for older employees has proved very attractive to both employers and employees. For employees, the loss of income resulting from switching to part time is relatively small since they receive both the earnings from their reduced working time (40%-60% of the former hours) and a supplementary income of 50% of the earnings lost through working part time. Moreover, all social insurance benefits remain fully in place. The employers are not burdened with additional costs, since their surplus contributions for the employees’ social insurance are refunded by the AMS. Overall, the employer has to pay less wages and salaries to the older employees involved, due to their reduced working time, while their valuable competence and skills are still available to the company. As there has been no obligation to recruit new employees, companies have been able to use the scheme as a subsidised means of internal restructuring and rationalisation. For all these reasons, the scale of participation in the scheme has become so high that the budget originally provided for it has turned out to be far too low. Given the budgetary constraints generally imposed on the authorities, a reform seems inevitable. (Georg Adam, University of Vienna)