Social partners address restructuring at national seminar

In October 2009, representatives of the government, employers, trade unions and researchers discussed issues concerning restructuring in Slovakia at the National Seminar on Restructuring in Bratislava – organised by the International Training Centre. The participants discussed tools and measures used for anticipating and managing restructuring in Slovakia. Particular attention was paid to measures and tools applied during the current economic crisis.

On 1 October 2009, a National Seminar on Restructuring in Slovakia was held in the country’s capital city of Bratislava. The seminar was organised by the International Training Centre of the International Labour Organization (ITCILO) as a part of a series of national seminars on restructuring organised in all EU Member States, at the request of the European Commission. Almost 40 representatives of employers, government bodies, trade unions and research institutes participated in the seminar. The seminar discussion was based on a national background paper compiled by Ludovit Cziria from the Institute for Labour and Family Research (Inštitút pre výskum práce a rodiny, IVPR) and Juraj Borgula from the Association of Mechanical Engineering (Zväz strojárskeho priemyslu Slovenskej republiky, ZSP SR).

Importance of restructuring for Slovakia

The seminar showed that restructuring has played an important role in the economic development of Slovakia since its origins in 1993. Over almost 20 years, restructuring has affected all economic sectors and branches, and significant changes have occurred in the privatisation of state enterprises in particular. Privatisation has also led to mistakes and problems – most notably, ineffective management, bankruptcy of enterprises, inability to pay credit and the resulting high indebtedness of commercial banks. However, privatisation has also aided Slovakia’s relatively quick transition to a market economy.

At present, more than 76% of employees work in the private sector and nearly 40% of all employees work in small and medium-sized enterprises (SMEs). Such extensive restructuring has led to a high rate of unemployment and a decrease in the real income of households, which only reached the level of 1989 in 2004. Since 2000, an increasing inflow of foreign investment has also occurred, which created directly or indirectly more than 80,000 new jobs in Slovakia. New investments have contributed to the reduction in the country’s high unemployment rate – from 18.6% in 2000 to 9.6% in 2008. They have also been instrumental in the country having one of the highest growth rates in gross domestic product (GDP) among the EU Member States: that is, of 10.4% in 2007 and 6.4% in 2008. During this period, a new Act No. 7/2005 on bankruptcy and restructuring has also been adopted, which enables the prevention of bankruptcy in enterprises through restructuring under the supervision of a court.

Restructuring during current economic crisis

The positive economic development in Slovakia was interrupted by the effects of the global economic crisis in 2009. From July 2004 to May 2009, about 72% of all restructuring cases, as recorded by the European Restructuring Monitor (ERM), were business expansion cases accompanied by the creation of new jobs; only 18% of the cases concerned the internal restructuring of enterprises. About 6% of cases involved bankruptcies and the closure of enterprises accompanied by the dismissal of employees. However, from October 2008 to May 2009, internal restructuring, bankruptcy and company closures, together with the delocalisation of some production from Slovakia to abroad, made up nearly 50% of all recorded cases.

Industrial production has been affected the most by the economic crisis. The decrease in manufacturing output – which fell by more than 20% in the first half of 2009 – has been manifested by a significant drop in the total efficiency of the economy, which is notably dependent on car production. The unemployment rate has also started to grow rapidly, and in July 2009 the rate of registered unemployment increased to 12.1%. At the same time, the number of job vacancies registered at the labour offices decreased by more than 19,000 vacancies in September 2008 to 7,079 in July 2009. It is assumed that there will be a significant drop in GDP in Slovakia in 2009 – according to the estimates of the Ministry of Finance (Ministerstvo financií Slovenskej republiky, MF SR) from June 2009, GDP will fall by about 6% this year.

Main topics of discussion

At the seminar, the social partners warned that despite the degree of optimism regarding the future economic outlook, it should not be expected that the economic crisis will end soon. The trade unions and employers agreed that collective bargaining is an acceptable measure for maintaining social peace, which has a high value for employers at times of economic crisis in particular.

Anticipating restructuring

Among the other topics discussed were the tools used for anticipating restructuring in economic sectors, branches and companies. In Slovakia, no specific tools exist thus far for a targeted restructuring of the economy and companies based on the anticipation of future needs. The state aid provided to important investors has played an important role in attracting new investors into the country. The activities of Slovak Investments and the Trade Development Agency (Slovenská agentúra pre rozvoj investícií a obchodu, SARIO) have also been relevant in this area. Most of those investments have taken place in the mechanical engineering sector, mainly in the automotive and electrical industries. As a result, the Slovak economy has become dependent on car production – however, the output of the automotive industry decreased by about 50% in the first quarter of 2009.

Against this background, the social partners as well as research representatives highlighted the importance of better targeted future investments in Slovakia, and how state aid should be differentiated and directed at sectors and branches with higher added value. Reacting to the impact of the economic crisis, the Ministry of the Economy (Ministerstvo hospodárstva Slovenskej republiky, MH SR) is currently preparing legislative amendments regarding investment aid that will improve conditions for supporting important strategic investors and better target them at more sophisticated branches of industry, including research and development.

Managing restructuring

Many enterprises that resorted to internal restructuring or faced bankruptcy dismissed redundant employees through mass dismissals. As a result, the government has adopted more than 60 anti-crisis measures, the majority of which have been devoted to supporting employment in enterprises endangered by the economic crisis (SK0908019I). The social partners discussed the use of tools that have been most often used by employers, in order to retain employment in enterprises as much as possible. These include the following measures:

  • a state allowance for employers through the payment of obligatory contributions to insurance funds for a maximum of 60 calendar days a year – the allowance would be available to employers that employ redundant employees instead of dismissing them, with the payment of a minimum of 60% of their wages;
  • flexible working time accounts – known as Flexikonto – which can be used by employers that have made employees temporarily redundant. These employees can take time off at the request of their employer, who will pay them the full wage. When they return to work, the employees have to work the lost hours without reward;
  • shortened daily or weekly working hours with proportionally reduced wages for the employees concerned.

The discussion also showed that certain changes in the area of care for dismissed employees are under preparation. These involve active labour market policy tools seeking to provide job applicants with quicker access to employment services. In particular, they will be targeted at disadvantaged job applicants – especially those registered at the labour offices for more than 48 months – along with school leavers, self-employed persons and employees made redundant through mass dismissals.

Problems in implementing measures

At the seminar, the employer and trade union representatives also addressed some weaknesses in the implementation of measures aimed at maintaining employment during the present economic crisis. In order to maintain employment, it is usually more convenient for employers to use ‘flexikonto’ measures than to take limited state allowance and pay the employees not engaged in work 60% of their wages. Nonetheless, this measure also requires additional financial resources that can be demanding for SMEs. Moreover, flexikonto measures can only be used in companies where trade unions exist and this form of working time schedule must be approved with the unions. The trade unions highlighted the fact that with regard to the flexikonto measures, the legislation does not specify when the employer can require the employees to make up for the lost working hours. As a result, this issue is to be addressed through an amendment to the Labour Code. In addition, flexikonto is not suitable for use in enterprises where continuous production technology is used. If circumstances allow, some enterprises, mainly multinational companies, can benefit from the possibility of shortened daily or weekly working hours. However, this measure is less convenient for employees as it is accompanied by reduced wages.

Ludovit Cziria, Institute for Labour and Family Research

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