Cyprus: Social partner’s involvement in unemployment benefit regimes

  • Observatory: EurWORK
  • Topic:
  • Published on: 20 December 2012



About
Country:
Cyprus
Author:
Eva Soumeli
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

Despite Cyprus’ long-standing tradition of tripartite concertation, the involvement of the social partners in the unemployment benefit regimes has been very limited. In this context, besides involvement in the preparation and establishment of legislation on social security in general, social partners do not play any particular role in terms of the unemployment benefit system. A reason for the limited role of the social partners is probably the low unemployment rate in Cyprus, at least until recently, as well as the relatively limited social dialogue agenda and the lack of initiative on behalf of the social partners to expand into new areas. As far as the system of unemployment insurance is concerned, no noticeable changes took place in the last 10 years, while in the light of the problem of rising unemployment; the government seems to adopt a more activated labour market approach that so far however does not seem to have any significant effect on the existing social protection mechanisms.

1. The characteristics of the UB system in the country

Table 1: Types of Unemployment Benefit and Social Assistance programmes
 

Benefits

Main qualifying conditions

Funding

Unemployment Insurance (UI)

earnings-related

involuntary unemployment - employment record - actively looking for work

contributions from employer and, sometimes, also employees, often topped by government payments

Unemployment Assistance (UA)

social minimum, partly means-tested

unemployment insurance expired or not eligible for it - (often) a short employment record - actively looking for work

contributions from employer and employee and/or government payments

Social Assistance (SA)

social minimum, comprehensively means-tested

unemployment insurance expired or not eligible for it - (for most categories of claimants) actively looking for work

taxes

1.1. Recent changes/transformations of the UB system in your country:

1.1.1. In the last 10 years, has the country’s UB regime been modified? Have new forms of interventions been introduced?

In Cyprus, unemployment is primarily covered by an unemployment insurance scheme that is part of the Social Security System (SKA) that began to develop in the second half of the 1950s. Despite some improvements during the 1960s and 1970s, mainly in terms of benefits coverage, (e.g. unemployment and sickness benefits were granted to married women in 1973), the most significant changes took place in 1980 with the enactment of the Law 41/1980 (CY0509102S). After the 1980s however, neither the amendment of the existing legislation nor the introduction of new legislation had any significant effect on the unemployment insurance scheme. In this context, the most noticeable change in the last ten years refers to the allocation of the contribution rate of the insurable earnings of employed persons into the Unemployment Account.

  • Regarding the UI:

Following the enactment of the Social Insurance Law 59(I)/2010, the contribution rate of the insurable earnings of employed persons that is allocated into the Unemployment Account has increased from 1% to 1.15%. It should be mentioned that the Social Insurance Scheme currently in place, maintains four separate accounts: the Unemployment Benefit Account, the Other Benefits Account, the Basic Pensions Account and the Supplementary Pensions Account.

  • Regarding the UA:

In Cyprus there is no Unemployment Assistance (UA) scheme as described in table 1.

  • Regarding the SA (if relevant):

Although in Cyprus there is a Social Assistance scheme, there is no direct relationship between UB and SA. Furthermore, in examining the existing SA system, there are no modifications during the last 10 years.

1.1.2. For each of these changes/innovations indicate:

  • date of introduction: 9 July 2010.
  • who took the initiative (government, unions, employers’ associations, other organisations): the Government as part of the Law 59(1)/2010 in relation to the Social Insurance Scheme accounts?
  • the content of the change / of the new programme: An increase of the contribution rate of the insurable earnings of employed persons that is allocated into the Unemployment Account from 1% to 1.15%.
  • the aim pursued: it is not known

1.1.3. For each of these changes / innovations please indicate from the main SP who was in favour or supported and who was against or resisted to it, and why:

1.2. The main characteristics of the UB system as it is now

1.2.1. Unemployment Insurance.

  • Coverage: (a general view of the groups that could potentially receive the UB) who is covered by the programme?

On the basis of the existing unemployment benefit system, insured employees as well as voluntarily insured people working for a Cypriot employer abroad are entitled to unemployment benefits, except for those under the age of 16 or over the age of 63. The upper limit of 63 is extended up to the age of 65 only when an insured person is not entitled to an old-age pension.

  • Eligibility:

Every insured person may apply for unemployment benefits for the days he/she is unemployed, able to work and willing to take an appropriate job. However, unemployment benefits are also granted to unemployed insured people for as long as they are attending vocational training courses. In this context, vocational training as part of the work it is considered as working time.

Insured persons are not considered as unemployed and as such are not deemed to be insured:

  • On days they are unable to work due to illness.
  • On Sundays.
  • On the days they are on leave.

On the days they are working at any occupation in addition to their usual work from which they have earnings equal to at least 1/12 of the amount of basic insurable earnings. The amount for basic insurable earnings for 2009, the most recent year for which statistical data are available, was 154.07 Euros per week.

  • Any day for which they receive pay from their employer.

Dock workers (registered or not) are not deemed to be unemployed if during the week for which they are requesting unemployment benefits they worked for pay equal to the amount of basic insurable earnings on the basis of which the amount of benefits is calculated.

Applicants lose their right to payment of unemployment benefits for up to six weeks if:

  • They lose their job through their own fault or voluntarily leave it without justification.
  • They refuse or fail to submit an application for appropriate work or to accept appropriate work that has been offered to them.
  • They fail to take advantage of an appropriate job opportunity.
  • They refuse or fail, without justification, to comply with instructions from the Social Insurance Services Director to attend vocational training courses.

Insured people are also deprived of their entitlement to unemployment benefits for the days they do not work due to work stoppages arising from labour disputes.

  • Duration:

Unemployment benefits are paid to employees for 156 working days in each period of interruption of employment (two days of sickness or unemployment within a period of six consecutive days, two or more of such periods are considered as being one, if there are not separated by a period of more than 13 weeks), beginning on the fourth day of unemployment, and to voluntarily insured people abroad after the first 30 days of unemployment.

  • Replacement rates:

As unemployment insurance is based on insurance principles, claimants must have contributed to the insurance fund over a certain period in order to be eligible for the unemployment benefit. Specifically, the insurance conditions are that a person:

  • has been insured for at least 26 weeks and has basic insurance up to the date of unemployment at least 0.5 of insurance point, earned from paid contributions. It is important to note that the total annual insurable earnings of every insured person are converted into insurance points. In this context, the conversion of insurable earnings into insurance points is done by dividing the earnings of a given year by the annual basic insurable earnings of the following year (in 2009, one point is credited for every €8,435 of earnings). The first insurance point represents basic insurance and insurance points in excess of one represent supplementary insurance.
  • has paid or been credited with contributions which provided him/her with at least 0.39 of insurance point within the relevant contributions year.

Against the above background, the amount of the unemployment benefit that is the same with the sickness benefit, is set on the basis of average paid (i.e. insurable earnings on which contributions have been paid) and credited insurable earnings (i.e. every insured person can be credited with insurable earnings for any period of full time education after the age of 16 years, for periods of serving in the National Guard, for periods who is in receipt of sickness, unemployment, maternity, injury benefits, or invalidity pension out of the Social Insurance Fund and for the period of parental leave or period of leave on grounds of force majeure) during the previous contributions year (i.e. for the first semester of 2012, the previous contributions year is 2010).

Unemployed people who have exhausted their entitlement to unemployment benefits regain it after at least 26 weeks have elapsed from the last day they received the benefit, provided they have worked and paid contributions on total earnings of not less than 26 times the weekly amount of basic insurable earnings. The same condition, but with the difference that only 13 weeks must elapse from the last day that the unemployment benefit was granted, also apply to cases of unemployed people over 60 years of age not entitled to pensions from any occupational scheme.

Another condition for granting unemployment benefits is that the existence of total paid or credited insurable earnings during the previous contribution year of not less than 20 times the weekly amount of basic insurable earnings. It is worth mentioning that for the purposes of the above conditions the contributions of a self-employed person are not taken into account.

The unemployment benefit is earnings-related and consists of a basic allowance and a supplementary allowance. The weekly amount of the basic allowance is equal to 60% of the weekly average of the beneficiary’s basic insurable earnings during the previous contributions year, and increases by 1/3 for a dependent spouse and by 1/6 for each child or other dependent family member (the maximum number of dependent children or other family members is two). The weekly amount of the supplementary allowance is equal to 50% of the weekly average of the beneficiary’s insurable earnings over and above basic insurable earnings. However, under no circumstances will a supplementary allowance higher than the weekly amount of basic insurable earnings be granted. Dependant of the insured person includes:

  • spouse with whom the insured person is living or is wholly or mainly maintained,
  • child who has not completed the age of 15,
  • unmarried daughter between the ages of 15 and 23, who is attending full time education,
  • unmarried son between the ages of 15 and 25, who is serving in the National Guard or attending full time education,
  • unmarried child, irrespective of age, who is permanently incapable of self support,
  • husband, who is incapable of self-support, and is wholly or mainly maintained by
  • parent, who is incapable of self-support and is maintained by the insured person,
  • younger brother or sister, if he is maintained by the insured person.
  • Financing:

The system of financing the unemployment benefit is directly related to the overall system of financing the social insurance scheme. Under the present Social Security System, the social insurance scheme is financed by contributions from employers, insured people and the state.

Workers in the category of employees pay a contribution of 13.6% of the insurable earnings, shared equally between the employer and the employee, while the category of self-employees pay a contribution of 12.6% of insurable income. Although in principle self-employees are obliged to pay contributions on the implicit income for their occupational category, they reserve the right to pay contributions on their real income, if they can prove that it is lower than their implicit income. They may also opt to pay contributions on incomes higher than the respective implicit income, up to the maximum limit for insurable earnings.

As concerns voluntarily insured people, the contribution for those working abroad is 13.6% of their insurable earnings, as agreed in the contract of employment, while other voluntary contributors pay 11% of an amount of earnings they fix, not exceeding the value of insurance points obtained in the previous year, or the average value of insurance points obtained over the last three years if higher.

National guard pay 1.25% of the basic insurable earnings paid by state, while the State contribution is set at 4.3% of the insurable earnings of employees, self-employees and voluntary contributors working abroad, and 3.8% of insurable earnings of other voluntary contributors.

In the above context, all contributions collected are paid into the Social Insurance Fund (TKA), which pays all the respective monetary benefits (i.e. marriage, maternity, illness, unemployment, widowhood, disability, orphan hood, old age, missing spouse, death, accident at work and occupational illness) as well as all administrative costs for the implementation of the legislation. The Social Security System also provides free medical and pharmaceutical care to beneficiaries of disability pensions and to insured people who sustain bodily injury from an accident at work or an occupational illness. In relation to the unemployment benefit, as it is stated above, following the enactment of the Social Insurance Law 59(I)/2010, the contribution rate of the insurable earnings of employed persons that is allocated into the Unemployment Account has increased from 1% to 1.15%.

It should be noted, however, that only people in the category of employee are entitled to all the above-mentioned benefits. In this context, self-employed people are excluded from unemployment benefits and benefits for accidents at work; voluntarily insured people are excluded from all benefits except those for marriage, childbirth, widowhood, old age, missing spouse, orphan hood and death; voluntarily insured people working for a Cypriot employer abroad are entitled to the same benefits as employees, with the exception of benefits for accidents at work.

  • SP involvement:
  1. who are the organisations involved and at which level do they operate? (e.g. trade unions, sectoral or national confederations, etc)

Both in terms of design and implementation, the system in Cyprus is characterised by high level of centralization, with the majority of social insurance policies being designed and implemented at the central government level by the Ministry of Labour and Social Insurance, through its specialised department of Social Insurance Services. Although a number of commentators and observers refer to the system as being decentralised because of the administrative setup of six regional offices (along the six districts of the island), the absence of any discretion and mandate to influence policy design and policy making render the District Welfare Offices rather marginal and instrumental in the implementation of the policies alone.

  1. why are these organisations involved (legitimacy)? Is it because they are representative?

1.2.2. Unemployment Assistance. Are forms of UA present? If yes, please indicate their general characteristics with specific attention to:

1.2.3. Social Assistance. Are SA programmes with a direct relationship with the UB system and/or SP involvement present? If yes, please highlight the factors underlying such a relationship.

Unlike unemployment insurance, social assistance is financed by the government and is not based on a contributory system. Specifically, the social welfare system that was firstly introduced in 1975, comprises a guaranteed minimum income through the Public Assistance Scheme, as well as a number of sub- programmes designed to target specific vulnerable groups, such as the disabled and the elderly, both applying the conditionality principle through the promotion of means-test techniques. In this context, the social welfare system which generally relies on taxation provides a further safety net for the unemployed, especially those whose benefit entitlement has been exhausted. As such, apart from additional benefits provided in order to cover special needs (e.g. rent allowance), the system also provides for a number of flat rate benefits as extra support to specific target groups which combine insurance and welfare benefits (known as mixed social security benefits, according to the EC Regulation 1408/1971). Examples of these are the social pension and child allowance, while health and medical care is generally available free of charge to all individuals that fall under the coverage of social welfare.

Social welfare policies are designed and implemented at the central government level by the Ministry of Labour and Social Insurance, through its specialised department of Social Welfare Services.

In the above context, it is obvious that there is no direct relationship between UB and SA.

2. SP involvement in the UB regime

Despite Cyprus’ long-standing tradition of tripartite concertation, the involvement of the social partners in the unemployment benefit regimes has been relatively limited, at least in comparison with other areas, such as the area of industrial relations, primarily with regard to determination of the terms and conditions of employment.

In the absence of any relevant bibliography on the specific issue (i.e. academic and policy papers or official public documents), it is very difficult to distinguish between the different levels of involvement. It seems however, that besides involvement in the preparation and establishment of legislation on social security in general, social partners do not play any particular role in terms of the unemployment benefit system. As such, their involvement refers almost entirely to the development phase and in very few cases to the implementation phase, while social partners have no role at all in the administration and/ or the monitoring of the unemployment benefit system.

2.1. The development phase

As far as social security in general is concerned, on the practical level collaboration among the social partners is achieved through their participation in the tripartite Social Insurance Council. The introduction by the government of a new Social Insurance Scheme - characterised as perhaps the most important measure in the field of social policy - was the result of such collaboration. In terms however of the unemployment benefit system, the involvement of the social partners, to a greater extent that of the trade unions, is restricted to submitting specific amendments mainly with regard to the conditions for granting benefits, the length of time benefits are paid, and the conditions for regaining them. In this context, a standing demand of the unions is to extend the period during which unemployment benefits are paid from the current six months to nine months (i.e. a demand put forward by the Pancyprian Federation of Labour- PEO) or to 12 months (i.e. a demand put forward by the Cyprus Employees Confederation- SEK). This demand however, is not being taken forward in a systematic manner, while in the light of rising unemployment it is currently not being taken forward at all.

At sectoral level, the payment of unemployment benefits to hotel employees, whose jobs are suspended during the winter season, is regulated by a tripartite agreement (CY0311102n, CY0504102f). Towards the same end, PEO recommends the same arrangement for any personnel whose jobs are regularly suspended for reasons of seasonality or emergency, as a means also to provide substantial help in dealing with financial deficits of the Unemployment Benefit Account.

2.2. The implementation phase

It seems that social partners have no role in the implementation of the unemployment benefit system.

2.3. The management phase

It seems that social partners have no role in the implementation of the unemployment benefit system. 2.4. The monitoring phase

It seems that social partners have no role in the implementation of the unemployment benefit system. 3. Final observations

3.1. Public debates and policy discussion:

The social partners’ involvement in the unemployment benefit regimes has never been an issue of public debate or policy discussion.

3.2. Research:

No relevant studies or policy papers were found.

4. Commentary

4.1. Assessments and comments:

The very low unemployment rate in Cyprus and the tight labour market conditions, partly explain the less pronounced position of the unemployment benefits in the overall social insurance system. In this context, concerns or criticism about the existing system are hardly even raised, while addressing the issue of unemployment benefit system has not been among the immediate priorities of the social partners. However, as unemployment in Cyprus has recently risen to its highest level since 1974, reaching 9.3% at the end of 2011 (CY1202029I) this issue will probably be under reconsideration. At any case, under the new conditions and given that the government addresses the problem of rising unemployment through more active labour market policies; it becomes more difficult for trade unions to focus on an increase in protection as they used to do in the past. It is about the discussion on passive labour policies vs. active labour policies. Although public dialogue on the issue is not very intense in Cyprus, trade unions, at least until now, they were generally against reforms that will put at risk the protection that is provided by out-of-work income support. In this framework, protection is perceived as minimum income protection. As a result of the severe financial crisis, the government think of implementing reforms to make benefit s more activating and to lower expenditures on passive measures, reforms however that are not officially announced yet.

As far as the existing system is concerned, in the opinion of the Ministry of Labour and Social Insurance, at present, there is no need to amend the financing of the unemployment benefit and it is recommended to leave the current contribution rate of 1.15 per cent of the earnings of the employed persons unchanged. Nevertheless, given the current experience of relatively high unemployment in Cyprus due to the recent economic downturn, it is recommended that the financial position of the Unemployment Account is being monitored more closely and on a more regular basis. Based on the last actuarial report of the Social Insurance Scheme for the year 2009, although the annual level of expenditure on unemployment benefit has experienced important variations during the period 2007-2009 (i.e. over the period 2005-2008 the total expenditure expressed as a percentage of insurable earnings decreased quite significantly from 1.14 in 2005 to 0.86 in 2008, a downward trend however that was reversed in 2009 due to the economic downturn), the overall financial status of the Unemployment Account has not changed over the same period.

4.2. Perceived strengths and weaknesses:

Despite the government’s interest for a more activated labour market approach to the issue of rising unemployment, individualised support and guidance to employment seekers, especially amongst the most vulnerable groups (e.g. long term unemployed) it is at the very first stages of development. In this context, although a number of services were initiated since May 2007 (e.g. timely and regular contact with the unemployed in order to actively support their search for work and facilitate their access to training) the lack of staff and infrastructure remains a major barrier to the development of such initiatives.

Given the long tradition in Cyprus in matters of social dialogue and tripartite cooperation, mainly in issues of social and labour policy, the social partners might be expected to be more involved in the planning, administration and application of the social security scheme. In this context, a weakness of the existing social dialogue system in Cyprus refers to the relatively limited social dialogue agenda, as well as a lack of initiative on behalf of the social partners to expand into new areas (e.g. economic and monetary policy), an issue that in our opinion goes hand by hand with the limited agenda of collective bargaining. In this context, the large unions like PEO and SEK recognise that they lack both the necessary expertise to deal with the increasing number of issues and complexity of issues at national level, as well as the necessary personnel that will enable them to participate in European Social Dialogue procedures in a more efficient way.

Eva Soumeli, INEK-PEO

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