Non-wage labour costs under discussion

In the first half of 2002, Austria's Chamber of the Economy (WKÖ) intensified its long-standing demand for a reduction in companies’ non-wage labour costs, in order to strengthen the performance of the Austrian economy. Since the current government supports this initiative, in April 2002 the Austrian Trade Union Federation (ÖGB) launched a campaign to maintain the level of non-wage labour costs, because these result from contributions shared by both employers and employees to finance the social security system.

In recent years, the Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ) has repeatedly launched a discussion over the perceived necessity for a sizeable cut in the companies’ non-wage labour costs, for reasons of international competitiveness. Business representatives have also always claimed that employers' high contributions to the Austrian welfare system are a structural impediment to job creation. WKÖ argues that a significant reduction in non-wage labour costs of about EUR 1.1 billion per year would stimulate employers to create several thousand new jobs, which would have a significant positive effect on the national economy.

In spring 2002, the current coalition government of the conservative People’s Party (Österreichische Volkspartei, ÖVP) and the populist Freedom Party (Freiheitliche Partei Österreichs, FPÖ) declared its support for WKÖ’s claims. In response, the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) launched a public campaign in April 2002 to defend the current social security system, based on statutory contributions paid by both the employers and employees. Since employers' non-wage labour costs are the financial basis for expenditure on social insurance (eg pensions, health insurance and unemployment benefits), a reduction of these costs would have consequences for the level of social benefits.

Unlike WKÖ, ÖGB claims that the crucial criterion of a national economy’s competitiveness is not the level of non-wage labour costs, but unit labour costs - expressing labour costs per unit produced. In this respect, as economists corroborate, the Austrian economy performs comparatively better than most of the other EU Member States. This is indicated by both an above-average profit growth for Austria’s companies, in comparison with labour cost growth, and by growing export market shares. Moreover, Austria’s unemployment rate - albeit increasing - still remains significantly below the average EU rate.

The controversy among the social partners on the role and function of non-wage labour costs is complicated by divisive and tendentious terminology. Labour costs consist of both wages and non-wage labour costs, with the latter being composed of a variety of levies and taxes (from public pension contributions to municipal rates). What exactly constitutes non-wage labour costs is a matter of contention, with employers’ representatives including more elements and coming up with a higher figure for (non-wage) labour costs than ÖGB (which calculates non-wage labour costs at about 29% of gross pay on average).

Another model of financing the social security system – advanced by labour representatives 20 years ago – would be to base it on charging companies’ value added (Wertschöpfungsabgabe). This would probably avoid conflicts like the current one. However, at present a systematic change in financing the public welfare system is unlikely to be initiated.

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