A comprehensive approach contributing to making work pay

The European Commission presents this communication with a view to addressing the key challenge of promoting more effective work incentives in social protection systems. It identifies the main challenges and policy responses that Member States have implemented with the aim of making social protection systems more employment friendly

ACT

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions. Modernising Social Protection for More and Better Jobs - a comprehensive approach contributing to making work pay [COM(2003) 842 final - Not published in the Official Journal].

SUMMARY

This communication aims to propose a range of incentives which can support workability, make work pay and ensure a high level of social protection for all, while, at the same time, avoiding excessive budgetary costs. Modernising Member States' social protection systems is essential in order to remove inherent disincentives to work and to create the right conditions for making work more attractive.

The expression "making work pay" refers in particular to the policies proposed by the Commission in its action plan on skills and mobility. The aim is to reform tax and benefit systems with a view to providing appropriate financial incentives to take up jobs, to remain in work, to increase work effort and to invest in education and training. The efforts made by Member States in this direction are supported through strengthened coordination of economic, employment and social policies and the establishment of ambitious targets at EU level for 2010: to increase the overall employment rate to 70%, the employment rate of women to 60% and the employment rate for people in the age range 55-64 to 50%.

This Communication is structured in accordance with the different roles that social protection systems can play in promoting successful labour market transitions in five different labour market situations:

• from benefits to jobs,
• reconciling work with family life,
• from job to job,
• from incapacity to work, and
• prolonging working life.

From benefits to jobs

Prompted by the high rates of unemployment and a concern to ensure that people are encouraged to be employed rather than choose to live on benefits, the Member States have undertaken to implement reforms such as the tightening up of qualifying conditions for eligibility, increasing the pressure of the unemployed to accept job offers, developing effective means to counter fraudulent claims and abuse of the system, or investing in active measures to help those re-entering employment to improve their employability. However, such an approach has to be carefully monitored in order to avoid that the reduction or suppression of benefits set off a pathway to poverty and social exclusion.

Members States have introduced a wide range of measures aimed at avoiding that unemployment support schemes may create disincentives to work. The measures implemented could be grouped around three major categories:

• employment incentives by limiting the amount of the employment benefit (Spain), the length of the unemployment benefit (Germany) and by making conditional activation complements (subsistence allowance) to job search and participation in active measures after a certain period of unemployment (Finland).
• combination of benefits with earnings from work (Spain, Ireland and Portugal), which combine the allocation of unemployment assistance or partial unemployment benefits with part-time or full-time jobs (Spain, Ireland and Portugal).
• more favourable tax and social security treatment for both employees and employers.

Reconciling work and family life

Public support for the reconciliation of work and family life has two aims: supporting families as they give birth to children and making it easier for people to perform their family responsibilities while accepting a job or remaining active on the labour market.

Member States typically provide some of these supports in the form of universal benefits, e.g. child benefits, or in the form of benefits contingent on the family situation. On the other hand, allowances paid in the event of maternity, paternity or paternal leave take the form of cash benefits, e.g. carers' allowances, and/or credited contributions to pension rights which limit the disadvantage that the person concerned suffers in terms of pension entitlement.

One of the major obstacles to parents' participation in the labour market, notably women and lone parents, is the absence of affordable child-care. Aware of this fact, the European Council of Barcelona (March 2002) invited all Member States to provide child care by 2010 to at least 90% of children between three years old and the mandatory school age and at least 33% of children under three years of age.

There is evidence of a continued high rate of investment in childcare in Nordic countries; other Member States have also adopted a whole series of reforms. Hence in 2004 France launched a number of measures to improve and simplify the system of family allowances, while 20 000 new childcare places are planned in the United Kingdom, which has introduced "Child Tax Credit" as the main way that families get money for their children and for 16-18 year olds in education.

As regards lone parent allowances, Member States have granted much attention to strengthening supports for participation in work. In France, lone parents receive the Allocation de Parent Isolé (API) while the United Kingdom applies policies designed to persuade lone parents to stop being economically inactive.

Facilitating occupational and geographic mobility

Occupational and geographic mobility is crucial for a high level of economic efficiency. It allows workers to move to those activities where they can be more productive and achieve higher earnings. However, moving from one sector to another can lead to a reduction in future pension entitlements. It is therefore important to ensure that those who change jobs or interrupt their careers face better conditions for the acquisition, preservation and transfer of occupational pension rights.

At the EU level, statutory social security schemes are coordinated through Regulation 883/2004 - abrogating Regulation 1408/71, which had been important in ensuring that workers are able to exercise their right to move freely in an EU-level labour market. As regards mobility, the Commission has also proposed specific measures in the field of employment, such as the elimination of obstacles to the recognition of education. These measures complement the European Employment Strategy, the " Education and Training 2010 " process, and the Copenhagen process on enhanced cooperation in vocational education and training.

From incapacity to work

There are many ways in which health problems can make it difficult to continue exercising one's current occupation, either temporarily or permanently. Despite this fact, many people who claim incapacity benefits would clearly be able to pursue some gainful activity.

This is why several Member States have adopted policy reforms and measures to encourage employment. Hence, Finland is planning early vocational rehabilitation measures for people at risk of becoming disabled. In the Netherlands and Luxembourg, employers must find a more suitable job for a disabled person within the company (if it has more than 25 employees in the case of Luxembourg or, in the case of the Netherlands, also in another company). Besides, in order to overcome the reluctance of beneficiaries to take up work, Sweden and Finland have authorised the temporary suspension of beneficiaries' entitlements to test their ability to work and France has announced that it will reinforce the effectiveness of medical controls. Finally, several countries (Denmark, Austria, Germany and the United Kingdom) have also begun to grant subsidies to employers, often in the form of reduced social insurance contributions, in order to support hiring or maintenance at work of disabled people.

Prolonging working lives

As established by the Stockholm and Barcelona European Council, one of the EU's objectives in the field of social protection is to ensure future financial sustainability and notably to guarantee adequate level incomes for future pensioners.

An alternative to early retirement would be to improve working conditions and to allow older workers with physically demanding jobs to move on to different activities. Member States thus recognise that the EU target of raising the employment rate of people aged 55 to 64 and of increasing the effective average exit age must be supported by profound adaptations of their social protection systems.

There is a trend towards allowing older workers to stay longer on the labour market and to combine earnings with their pension or, if they defer the receipt of their pension, to acquire higher pension entitlements.

The situation in acceding countries

While the social protection systems in the new Member States differ greatly among them, the following features seem to be more widely present:

• low participation rates, partly reflecting high unemployment rates which result from the extensive use of early retirement and invalidity pensions during the economic restructuring process;
• weak social protection and non-employment friendly tax systems;
• the informal economy and migration, which poses serious problems both in terms of coverage of these workers and for the long-term financial sustainability of the social protection systems in host countries.

Acceding countries should reinforce their social protection systems and their active labour market policies with the aim of increasing the participation rates and reducing the dependency ratio of people living on long-term benefits.

RELATED ACTS

Decision 2003/578/EC of 22 July 2003 on guidelines for the employment policies of the Member States [Official Journal L 197 of 05.08.2003].

Last updated: 15.03.2005