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According to OECD terminology, passive labor market policies are aimed at providing employment opportunities to job seekers and employers, offering financial assistance to job seekers, and reducing the labor supply (Nesporova and Uldrichova, 1997, p. 62). Although each country has outlined distinct criteria the unemployed must meet in order to be covered by passive labor market policies, the same range of policies exist in all of the countries.
The package of passive labor market policies normally includes registering job seekers, collecting information about vacancies from enterprises, providing job counseling as well as professional guidance and assistance, collecting information about available employment programs, managing unemployment benefit payments, and in some cases, supervising early retirement schemes as well.
Measures related to registering and placing the unemployed are relevant in all transition countries and serve as a foundation upon which other passive labor market programs can be built. Labor offices are responsible for registering the unemployed and facilitating new job placements. Each country has laws that clarify who can register the unemployed. In both the Czech Republic and Hungary, both public labor offices and private agencies help with placement.
In Poland, by contrast, a law forbids private employment agencies; similar laws are in force in Spain and Denmark (Fretwell and Jackman, 1994, p. 176). When the law was enacted, Poland faced more difficulties with placement than either the Czech Republic or Hungary. There were fewer vacancies and fewer labor office staff, most of whom were preoccupied with administrative responsibilities and could not dedicate sufficient attention to placing job seekers (Gora, p. 125). Poland and other transition countries also encountered problems with registering placement successes because there were no strict rules about the process, which made the rate of unemployment inconsistent (Ibid.). Another activity to reduce labor supply was creating early retirement schemes. This was popular in the Czech Republic, Hungary, Romania, and Slovenia (Ibid., p. 8). The early retirement scheme in the Czech Republic was introduced in 1991, when Czech authorities doubled the payroll tax of workers who had reached retirement age. In the Czech Republic, these schemes were possible only for redundant workers (Nesporova and Uldrichova, 1997, p. 64), while in Hungary they were restricted to those who had been unemployed for at least six months (Frey, 1997, p. 99). Criteria were regulated by law. In Hungary, candidates had to have a minimum of 20 years of work experience, be within three years of the regular retirement age, and be unable to find a suitable job – even through the labor office (Ibid.). In the Czech Republic, candidates had to have a minimum of 25 years of work experience, be within two years of the regular retirement age, and be unable to find a suitable job – even through the labor office (Nesporova and Uldrichova, 1997, p. 64). In the Czech Republic, approximately 100,000 people entered early retirement annually in 1992 and 1993. In Hungary, 20,011 people retired early in 1992 and 29,752 in 1993. Czech schemes were covered from social insurance funds rather than employment policy resources, while Hungarian schemes were funded by pension insurance transfers from the Solidarity Fund (Ibid.). This measure was struck down by the Czech courts in 1993 (Kramer, 1997, p. 91). Unemployment benefit systems are complex and differ across the region in terms of entitlement period and benefit formulae (Table 1.3). While there are differences in eligibility, in general, eligibility requirements are the “involuntary termination of employment, registration at unemployment offices, willingness to undergo job training, and no refusal of suitable offers” (World Employment, 1996/97, p. 127). The duration of benefits depends on the amount of previous continuous employment, and in some countries on age as well. To determine the amount of benefits, countries use previous earnings, minimum and average wages, or a flat rate, as in Albania and Estonia.
Source: US Social Security Administration, Office of Research and Statistics: Social security programs throughout the world – 1995, as presented in Table 4.8 in World Employment 1996/97, p.126. Attempting to address the problems of people whose benefit entitlements had terminated, Poland introduced a free health care program. It provided free health care for the unemployed and their families, regardless of whether they claimed benefits or not, thus attempting to reduce the negative social impact of the shortened duration of unemployment benefits. However, this policy contributed to an increase in the registered unemployed and became yet another burden on the state budget (Gora, 1997, p. 126).
The main goals of active labor market policies are “ to facilitate restructuring and to anticipate, shorten, and alleviate unemployment to the extent that doing so is feasible and cost-effective”, while at the same time increasing labor productivity, especially for the economically disadvantaged and unemployed (Fretwell and Jackman, 1994, p. 169).
Active labor market policies normally consist of a variety of programs. Different programs, or a mix of programs, have been implemented in the transition economies, depending on the specific labor market in a country or region and the targeting of job seekers. Of the transition countries, the Czech Republic dedicates the most attention to developing active policies; more than half its total expenditure on unemployment is via active policies. Unlike the Czech Republic, other Central and Eastern European countries spend only 10 percent of their funds for the unemployed on active policies (Ibid.).
Training and retraining programs are some of the most widely implemented active labor market policies in the transition economies. In the Czech Republic, training programs aim to improve trainees’ chances of finding new jobs. Czech training programs include carefully designed courses that meet actual labor market needs; with a good match between trainees and courses, jobs are found more rapidly after retraining (Nesporova and Uldrichova, 1997, p. 65). However, Czech training courses are available free of charge only for the registered unemployed, and exclude employees threatened by redundancy and employees of enterprises that are undergoing restructuring (Ibid.), which diminishes their chances of finding a job afterwards. Job creation programs represent a broader concept, involving activities in “socially purposeful jobs” that are intended either for the unemployed or for specific groups of job seekers, including disabled people, graduates, or those interested in starting their own businesses (Nesporova and Uldrichova, 1997, p. 65). The second type is entitled “subsidies for job creation”, which aims to employ people who are excluded from the labor market. The state offers a tender for creating new jobs. Applicants are chosen based on the number and type of unemployed they intend to employ, and other criteria. The employer must create the jobs within a year of signing the contract and ensure that the jobs are filled by people who have been referred by the labor centers. Labor centers offer several types of subsidies: a non-refundable contribution to capital, which is available to applicants who employ people with reduced working ability; a refundable interest-free contribution to capital; a reimbursement of interest; and a reimbursement of the costs of a loan guarantee (Ibid.). Although this mechanism seems promising, some weaknesses have appeared in practice; new jobs have generally been created in areas with low unemployment, while high unemployment areas have not been able to produce sufficient demand for the program (Ibid.). Hungary introduced employment companies to address high regional unemployment, particularly in local communities where large enterprises were liquidated. The goal was to avoid massive and sudden increases in unemployment and social tension by providing temporary employment and training for dismissed workers. By 1994, Hungary had developed two organizations of this kind. One was set up in Ozd, where, due to the reduction of heavy industry, more than 15,000 people had lost their jobs; the other was set up in a similar area where, because of the closing of a large metallurgy company, 4,000 jobs were endangered. Although modest, the results were positive (Frey, 1997, p. 109). The promotion of small and medium-sized enterprises (SMEs) is among the more popular active programs in transition economies. Bulgaria, the Czech Republic, Hungary, Poland and Slovenia have created programs that offer support to the unemployed by encouraging them to develop their own businesses. In fact, in the Czech Republic, which implemented such a policy in 1992, support is available regardless of employment status. It is aimed at facilitating access to capital, providing information on relevant legislation, making tax concessions to new entrepreneurs, giving advice on planning and accounting, as well as providing training to new business owners. The Czech government takes this program seriously. Evaluations are conducted annually and government approval is necessary in order to continue old programs or initiate new ones. The Czech program includes two discrete activities: one program regulates the development of SMEs in general, and the other promotes specific fields of activity or the development of a depressed region. These programs offer “guarantees for commercial credits, contributions to cover interest on commercial credits, or guaranteed payment on different terms” (Ibid., p. 68). The government provides some funding, which is complemented by international SME development programs within the framework of EU PHARE4, other international organizations and western governments. Moreover, a special bank, called the Czech-Moravian Guarantee and Development Bank, was created to provide credit guarantees for small and medium-sized enterprises (Ibid.). When Poland introduced start-up loans in 1990, the program was one of the most important active labor market policies. However, due to the budget crisis in 1991, expenditures for this program were sharply cut. Another reason was the labor offices’ lack of preparation for this kind of activity; they were overwhelmed with other administrative responsibilities. Nor were the banks strong enough to provide sufficient support to labor offices in this area. Though expenditure increased in 1993 and 1994 as compared to 1991 and 1992, it was still lower than the amount devoted to this program in 1990 (Gora, 1997, p. 131).
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