Reform of Severance Pay Law in Austria - mutual learning programme
Reform of Severance Pay Law in Austria - mutual learning programme Reform of Severance Pay Law in Austria - mutual learning programme
DISCUSSION PAPER because they do not lose their entitlement to severance payment when quitting a job. Therefore the “flexicurity” features of the Austrian labour market are strengthened. The reform extends the number of workers entitled for severance pay considerably, however, it is expected that average severance pay will be lower in the new system. The former severance pay system was heavily criticised for distorting mobility decisions. The loss of entitlement to severance pay created a strong incentive for workers with long job tenures not to quit. The new severance pay system eliminates this disincentive. As far as I know no study exists, which estimates the quantitative impact on actual labour mobility. One can only speculate that the impact is currently at most modest as many workers with long tenure are still covered by the former legislation. Furthermore, reducing labour mobility may be justified, if it supports investment in firm specific human capital. Moreover, entitlement does not depend on the form of termination of the contract, therefore severance payment is not a layoff tax any more. The reform improves the role of the capital market in Austria and helps to strengthen the funded pillar of the pension system. However, the possibility to claim cash payments after job termination, which decreases the expected return on the capital market, and the relative low contribution rate imply that the new system may not generate a sufficient second pillar retirement income. One should note, that the available evidence indicates that disbursement is preferred to acquiring pension claims by a considerable number of workers. 5. Literature Blanchard, O., Tirole, J. (2004): The optimal design of unemployment insurance and employment protection: a first pass, MIT Economics Working Paper 04-15. BMWA Bundesministerium für Wirtschaft und Arbeit (2000): Abfertigung Neu: Bericht der Expertenarbeitsgruppe 1999/2000, Wien. BMWA (2005): Labour Market and Labour Market Policy in Austria, Vienna, available at http://www.bmwa.gv.at/EN/Topics/Labourmarket/policy/default.htm. BMWA, Synthesis (2006): From Severance Pay to the Separation Account, Vienna. Card, D., Chetty, R., Weber, A. (2006): Cash-on-Hand and Competing Models of Intertemporal Behaviour: New Evidence from the Labour Market, NBER Working Paper 12639. EIRO (2001): Reform of severance pay under discussion, available at http://www.eiro.eurofound.ie/2001/06/inbrief/at0106220n.html European Commission (2006): Employment in Europe 2006, Brussels. GPA (2006): Mitarbeitervorsorgekassen im Vergleich, available at http://gpa.at Holzmann, R. (2005): Reforming Severance Pay: Towards an Understanding of Program Rational, Economic Impact and Reform Options, Empirica, 32, 251-253. 30 Nov - 1 Dec 2006 Peer Review Reform of Severance Pay Law, Vienna 18
DISCUSSION PAPER Kristen, S., Pinggera, W., Schön, R. (2002), Abfertigung Neu Überblick über die Neuregelungen durch das Betriebliche Mitarbeitervorsorgegesetz, Recht der Wirtschaft, Nr. 7/2002. Koman, R., Schuh, U., Weber, A. (2005): The Austrian Severance Pay Reform: Toward a Funded Pension Pillar, Empirica, 32, 255-274. OECD (2001): Economic Survey Austria, Paris. OECD (2003): Economic Survey Austria, Paris. OECD (2006): Employment Outlook 2006, Paris. Stiglbauer, A. (2006): Wie “dynamisch” ist der österreichische Arbeitsmarkt Wirtschaftspolitische Blätter, 53, 143-160. Stiglbauer, A., Stahl, F., Winter-Ebmer, R., Zweimüller, J. (2003): Job Creation and Job Destruction in a Regulated Labor Market: The Case of Austria, Empirica, 30, 127–148. Walter, H., Ökonomische Funktionen der österreichischen Abfertigungsregel im Lichte von Theorie und Empirie, mimeo, Institut für Volkswirtschaftslehre, Wirtschaftsuniversität Wien. Young, D., Employment protection legislation: its economic impact and the case for reforms, Economic Papers 186, European Commission. Useful links: http://www.bmwa.gv.at/abfertigungneu/vorsorgekasse.htm (in german) http://www.mitarbeitervorsorgekassen.at/ 30 Nov - 1 Dec 2006 Peer Review Reform of Severance Pay Law, Vienna 19
- Page 1 and 2: DISCUSSION PAPER Reform of Severanc
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- Page 7 and 8: DISCUSSION PAPER Figure 2: Persons
- Page 9 and 10: DISCUSSION PAPER In the new system
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DISCUSSION PAPER<br />
because they do not lose their entitlement to severance payment when quitt<strong>in</strong>g a job. Therefore<br />
the “flexicurity” features <strong>of</strong> the <strong>Austria</strong>n labour market are strengthened. The reform extends the<br />
number <strong>of</strong> workers entitled for severance pay considerably, however, it is expected that average<br />
severance pay will be lower <strong>in</strong> the new system.<br />
The former severance pay system was heavily criticised for distort<strong>in</strong>g mobility decisions. The loss<br />
<strong>of</strong> entitlement to severance pay created a strong <strong>in</strong>centive for workers with long job tenures not to<br />
quit. The new severance pay system elim<strong>in</strong>ates this dis<strong>in</strong>centive. As far as I know no study exists,<br />
which estimates the quantitative impact on actual labour mobility. One can only speculate that the<br />
impact is currently at most modest as many workers with long tenure are still covered by the<br />
former legislation. Furthermore, reduc<strong>in</strong>g labour mobility may be justified, if it supports <strong>in</strong>vestment<br />
<strong>in</strong> firm specific human capital. Moreover, entitlement does not depend on the form <strong>of</strong> term<strong>in</strong>ation<br />
<strong>of</strong> the contract, therefore severance payment is not a lay<strong>of</strong>f tax any more.<br />
The reform improves the role <strong>of</strong> the capital market <strong>in</strong> <strong>Austria</strong> and helps to strengthen the funded<br />
pillar <strong>of</strong> the pension system. However, the possibility to claim cash payments after job<br />
term<strong>in</strong>ation, which decreases the expected return on the capital market, and the relative low<br />
contribution rate imply that the new system may not generate a sufficient second pillar retirement<br />
<strong>in</strong>come. One should note, that the available evidence <strong>in</strong>dicates that disbursement is preferred to<br />
acquir<strong>in</strong>g pension claims by a considerable number <strong>of</strong> workers.<br />
5. Literature<br />
Blanchard, O., Tirole, J. (2004): The optimal design <strong>of</strong> unemployment <strong>in</strong>surance and employment<br />
protection: a first pass, MIT Economics Work<strong>in</strong>g Paper 04-15.<br />
BMWA Bundesm<strong>in</strong>isterium für Wirtschaft und Arbeit (2000): Abfertigung Neu: Bericht der<br />
Expertenarbeitsgruppe 1999/2000, Wien.<br />
BMWA (2005): Labour Market and Labour Market Policy <strong>in</strong> <strong>Austria</strong>, Vienna, available at<br />
http://www.bmwa.gv.at/EN/Topics/Labourmarket/policy/default.htm.<br />
BMWA, Synthesis (2006): From <strong>Severance</strong> <strong>Pay</strong> to the Separation Account, Vienna.<br />
Card, D., Chetty, R., Weber, A. (2006): Cash-on-Hand and Compet<strong>in</strong>g Models <strong>of</strong> Intertemporal<br />
Behaviour: New Evidence from the Labour Market, NBER Work<strong>in</strong>g Paper 12639.<br />
EIRO (2001): <strong>Reform</strong> <strong>of</strong> severance pay under discussion, available at<br />
http://www.eiro.eur<strong>of</strong>ound.ie/2001/06/<strong>in</strong>brief/at0106220n.html<br />
European Commission (2006): Employment <strong>in</strong> Europe 2006, Brussels.<br />
GPA (2006): Mitarbeitervorsorgekassen im Vergleich, available at http://gpa.at<br />
Holzmann, R. (2005): <strong>Reform</strong><strong>in</strong>g <strong>Severance</strong> <strong>Pay</strong>: Towards an Understand<strong>in</strong>g <strong>of</strong> Program<br />
Rational, Economic Impact and <strong>Reform</strong> Options, Empirica, 32, 251-253.<br />
30 Nov - 1 Dec 2006 Peer Review <strong>Reform</strong> <strong>of</strong> <strong>Severance</strong> <strong>Pay</strong> <strong>Law</strong>, Vienna<br />
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