Unemployment benefits examined

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High levels of unemployment have emerged as Poland has developed a market economy. In the first years of economic transformation, the government introduced relatively high unemployment benefits, but over the years unemployment policy has changed considerably. Unemployment benefit levels have been cut, the criteria for entitlement tightened, and the period of receipt of benefit reduced. Unemployed people now receive support at subsistence level and are simultaneously encouraged to seek a job. Furthermore, the restructuring of major sectors of the economy has meant large-scale job losses, forcing the government to realign its social insurance policy and introduce a variety of allowances (such as 'pre-pensionable' benefits). This feature examines the development of unemployment benefits in Poland from 1989 to 2002.

At the beginning of the transformation of the Polish economy at the end of the 1980s, the threat of mass unemployment and the fear of its consequences prompted the government to create a system of allowances for people losing their jobs, aimed at facilitating social acceptance of unemployment without inciting a wave of protests. In December 1989, the main chamber of the Polish parliament (Sejm Rzeczpospolitej Polskiej) passed an Act on Employment as part of a legislative package of measures to reform the economy.

Initial approach

The 1989 Act entitled unemployed people to obtain unemployment benefit starting seven days after the date of their registration as unemployed with the labour office, providing that the office had failed to offer them a job, vocational training, employment in public works etc. The level of the benefit depended on the level of the person's last remuneration and on the length of the period of unemployment, starting from the date of registration. Benefit gradually diminished over the period of unemployment, starting at 70% of last remuneration (providing that this did not exceed the average wage) during the first three months of unemployment, and then falling to 50% during the subsequent six months, and finally to 40% thereafter. The 1989 Act did not introduce any time limit for obtaining unemployment benefit – it was possible for people to receive this allowance until they found a job or retired. The benefit could not be lower than the minimum wage nor higher than the average wage. Another element in the scheme was the possibility of registering as unemployed for people who had not yet worked. Such people obtained a benefit amounting to the level of the minimum wage. Graduates who failed to find a job after leaving education were entitled to benefit amounting to 200% of the minimum wage during the first three months of unemployment period, falling to 150% during the subsequent six months, and 100% thereafter. The right to unemployment benefit was lost if the recipient rejected two consecutive job offers (or vocational training place etc) over a period of one month.

This quite expensive programme of support for unemployed people was to be financed by a special Labour Fund, created from the contributions of employers and employees, and budget allocations. It was clear, especially at the beginning, that the essential part of the funding would be generated from the state budget.

The main goal of the Act of December 1989 was to alleviate the shock following the bankruptcy of enterprises and mounting unemployment – in a country whose economy had previously been afflicted by labour shortages. It is not quite clear whether the government of the time introduced so 'generous' a system merely with the aim of achieving a peaceful institutionalisation of unemployment in Poland and intentionally introduced these measures on a temporary basis, or whether it was hoping that this would be a long-term regulation of the unemployment issue. However, it seems that the government, seeking to gain social acceptance for its far-reaching reforms, was more interested in a temporary solution.

Over the first few months following the introduction of this 'shock therapy' package of economic reforms, it turned out that - in spite of a wave of strikes - society as a whole accepted the reforms. The threat of a general strike or massive support for demagogic populists, which would considerably hamper the reforms, was successfully averted. However, due to rapidly rising unemployment it became clear that the state would not be able to provide unemployment benefit worth even the minimum wage for millions of people over many years. As a result, seven months after the first Act on unemployment benefits came into force the Sejm passed amendments. The main objective of the government was to stop the registration as unemployed of those people who had belonged to the category of 'hidden unemployment' during the previous period of authoritarian socialism. The modified Act stated that a person applying for unemployment benefit should have been working for at least 180 days during last 12 months. Moreover, the level of benefits for graduates who failed to find a job after leaving education was lowered. However, the government still did not impose any time limit on the period of receiving unemployment benefit.

Restrictions on right to unemployment benefit

During the following year (1991), when it became evident that the society faced mounting massive unemployment and even, to a certain extent, took it for granted as an inevitable development, the government introduced a number of further modifications of the regulations on unemployment, which were regarded as both socially and economically indispensible. However, these solutions turned out to be extremely socially harmful. First, the government introduced a maximum period of granting unemployment benefits – 12 months, which could be prolonged in case of people with a very long employment history (18 months of benefit for men whose previous employment exceeded 30 years and for women whose previous employment exceeded 25 years). Moreover, the government introduced a number of measures to make the period of benefit payment more flexible: if the unemployment rate was particularly low, the benefit period was reduced to as low as three months, whereas if the unemployment rate was high, it was prolonged. Although the level of the benefit remained correlated with the level of the person's last remuneration, its lower limit was drastically lowered: it was defined as 33% of the average wage, assuming that its upper limit was the minimum wage. Moreover, the government introduced a rule that the graduates could obtain unemployment benefit only three months after registration with the labour office - a measure aimed at overcoming widespread passivity among young people, who were reluctant to search for a job on their own.

In 1992, a series of further amendments were made to the Act. One of the most significant was that the level of unemployment benefit was no longer correlated with recipients' level of remuneration prior to losing their job. Thereafter, unemployed people were entitled to benefit amounting to 36% of the average wage.

The government found the restructuring of major economic sectors (such as mining and the steel industry) and important enterprises (such as the railways) particularly challenging in this area, since this required the adoption of special solutions. Consequently, in 1995 the government promulgated a rule stating that miners, who received a very high one-off severance payment on losing their jobs, would not be entitled to unemployment benefit for 12 months.

From 1996, the government introduced further modifications. The first amendment lowered unemployment benefit: its amount was defined in cash terms and it was envisaged that this amount would be correlated with prices growth. The level of benefit equalled one third of the average wage at the time, but allowed for the future stabilisation of benefits at a lower level - the average wage had an upward tendency and usually exceeded the budget estimates. The second modification abolished the right to unemployment benefit for graduates on leaving education. Instead, the graduates were to receive a very small 12-month scholarship, providing that they started training or a vocational traineeship.

Pre-pensionable benefits and allowances

In 1997, the government introduced 'pre-pensionable' benefits and allowances, aimed at encouraging older people to give up paid work. Pre-pensionable benefits were intended for people with 30 years in employment in the case of women and 35 years in the case of men, providing that they met specific additional requirements. The level of this benefit amounted to 120% of unemployment benefit. Pre-pensionable allowances, on the other hand, were intended for people with an 'adequately' long employment history and who were at an 'adequate', precisely defined, age – a couple of years before the pensionable age. This allowance amounted to 80% of the pension which would be obtained by the person concerned on retirement. However, pre-pensionable allowances were not granted automatically but depended on the specific situation of a given sector. As a result, they were subject to negotiation between the government and the trade unions. In the course of tripartite negotiations, the unions induced the government to grant these allowances to those people who lost their jobs during the restructuring of the steel industry and other sectors.

The unstable situation on the labour market and unpredictable side-effects of previously adopted solutions forced the government to introduce these amendments to the regulations concerning the situation of unemployed people. Apart from the measures mentioned above (pre-pensionable allowances, specific regulations concerning atypical situations and allowances intended for specific sectors), the system in general has now become stable: in the case of people with the required employment history, during which they paid Labour Fund contributions, it provides for a very low standard 12-month unemployment allowance.

Social welfare

The fundamental problem of Polish unemployment lies in its large-scale character (with a rate of 17.4% in August 2002) as well as in the fact that 40% of the people registered as unemployed have been jobless for more than 12 months, which means that over 1 million people are not entitled to unemployment benefit. In order to enable these people to live at subsistence level, the government created a system of social welfare, regulated by an Act of 1990, repeatedly modified since. According to this Act, social welfare is intended for groups such as the poor, orphans, homeless people, unemployed people and families with many children. Apart from ordinary support, the legislative regulations provide for the creation of a 'guaranteed temporary allowance', which is intended for people meeting the following three requirements: they have been lost the right to the unemployment benefit; their personal income does not exceed a stated limit; and they bring up on their own at least one child up to seven years of age. That specific allowance can be paid for the period of 35 months.

Rising unemployment is conducive to a rapidly growing number of people in need of social support. In 1990, 1,650,000 persons benefited from social welfare, and in 1995 as many as 2,127,000 people were in this position. Currently, a similar number of people are provided with social support (2,144,000 people in 2000, according to the Statistical Yearbook of the Republic of Poland, 2001). In 2000, the average annual subsistence allowance provided by social welfare amounted to PLN 1,449 , which did not exceed the average monthly wage.

Commentary

Mass unemployment in Poland has always constituted a great challenge for the political elite when it launches a programme of draconian economic reforms. In order to alleviate the ensuing shock, at the end of the 1980s and at the beginning of the 1990s the government decided to introduce an extremely generous system of unemployment benefits. However, after a couple of years it turned out that unemployment did not evoke any social protests which would hamper the programme of economic reforms. Consequently, the government decided to adopt a system which would both burden the state budget less and permit unemployed people to live at least at subsistence level. Recent economic and sociological research conducted in Poland demonstrates that high-level unemployment and a relatively stringent system of unemployment benefits have not destabilised the social situation in the country, which is due to the fact that around 1 million Poles (the majority of whom are registered as unemployed without the right to the unemployment benefit) work in the 'grey' economy. Moreover, a certain part of the unemployed (the exact number is hard to estimate) unofficially seek and find jobs in Western Europe. (Juliusz Gardawski, Warsaw School of Economics (Szkoła Główna Handlowa, SGH) and Institute of Public Affairs (Instytut Spraw Publicznych, ISP)

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