By Vishnu Prasad, IFMR Finance Foundation
As part of our series on Unemployment Support in India, this blog post explores the unemployment insurance schemes in Hungary and Poland.
Social security in Hungary is composed of 5 components: pensions, health services, unemployment insurance, family support system and social assistance system. All persons who are gainfully employed and those of “equivalent status” are insured. These persons include those in paid employment ((including those in public administration), the self-employed (including members of co-operative societies), persons receiving income subsidy, jobseeker benefit and job-seeker aid. Everyone is automatically affiliated to a social insurance scheme as soon as he or she begins to work in Hungary and is not exempted from being compulsory insured. Self-employed people register themselves, and employers register their employees.
Hungary is estimated to have about 9.4% of its labour force in the informal sector1. Hungary introduced an unemployment compensation scheme in 1989 and an unemployment insurance system in 1991.
The scheme is financed primarily by employee and employer contributions. Employees pay 1.5% of gross earnings to the unemployment insurance scheme. Employees pay 27% of gross monthly payroll in the form of a social contribution tax, which includes pension, survivor benefits, disability benefits, work injury benefits, sickness and maternity benefits, and unemployment benefits. Deficits are covered through government funding.
A job-seeker who has in contributory employment for at least 365 days in the four years (before becoming a job-seeker) is entitled to one day’s benefit for every five days worked. This means that the minimum entitlement is for 73 days, and the maximum 270 days.
There are two types of unemployment benefits in Hungary: active and passive. The former consists of information about employment and the labour market, occupational guidance and counselling, local employment tips and job offers. Additionally, there are training and business start-up programmes. If an eligible person enrols in a training program, she is entitled to a minimum wage allowance.
Passive benefits are financial benefits and are divided into two: job-seeker benefit and job-seeker aid.
Job-seeker benefits are divided into two stages. In stage one; an eligible person is entitled to 60% of her previous average pay up to a maximum of 91 days. The allowance is subject to a minimum and maximum cap of 60% and 120% of minimum wage respectively. In stage two, an eligible person is entitled to a benefit of 60% of minimum wage up to a maximum of 179 days.
Job-seeker aid is paid to a job-seeker:
- who is not receiving invalidity pension, work-accident-related invalidity benefit or sickness benefit, and
- who wants to work but has not found a job and for whom the competent employment agency cannot find appropriate work, and who:
- has received job-seeker benefit for at least 180 days and whose allowance has stopped at the end of the prescribed period or
- has worked for 200 days in the four calendar years before becoming a job-seeker and is not entitled to job-seeker benefit or
- at the time of application is within five years of legal retirement age and has received job-seeker benefit for at least 140 days and is no longer entitled to that benefit.
For categories 1 and 2, the aid period is 90 days and for category 3, aid continues until they are eligible for old-age pension. The aid amount is 40% of minimum wage.
Wolff (1997) reports that there are three types of subsidised employment schemes in Hungary: subsidy for employment in the private sector, start-up allowances and public works.
An unemployment insurance beneficiary, who has been unemployed for six months, can qualify for subsidy for employment in the private sector. Up to half the wage cost for a year is paid for. The employer is required not to make redundant workers in a similar line of work (in order to avoid displacement effects).
Job-seekers can avail a lump sum equal to six months’ insurance benefit and 50% reimbursement on training and counselling services as start-up allowance. Public works targets long-term unemployed and engages them in temporary works.
The social security system in Poland is composed of the social insurance and welfare system, health insurance system, unemployment benefits as well as the social assistance system. Poland introduced unemployment insurance in 1989 as a measure to tackle the large scale unemployment that was feared as a result of the ‘shock therapy’ induced structural transformation of the economy.
The initial scheme had a broad eligibility criterion- anyone without a job was eligible for unemployment insurance and benefits could be availed indefinitely. As unemployment rose in the 1990s, the insurance scheme became unsustainable due to rising costs.
Poland is estimated to have about 21.6% of its labour force in the informal sector.
The Polish unemployment insurance scheme is financed by a 2.45% payroll tax, paid by the employers. The government covers any deficits.
Any unemployed person who has paid compulsory contribution to the labour fund for a period of 365 days out of the last 18 months, was working (on the basis of an employment contract, a contract of mandate, business activity, etc.) and receiving remuneration equal to at least minimum wage is eligible to avail unemployment benefit.
The beneficiaries get a flat rate per month2 (calculated as a percentage of the average national wage). Beneficiaries with less than 5 years of work experience get 80% of this amount and those with more than 20 years of work experience get 120% of basic benefit. Benefits are paid for 6 months to 18 months, depending on the unemployment rate of a region (district).
There are active benefits like job placement, vocational assistance and guidance in active job search and training programs.
The Polish law has additional provisions like subsidised jobs, public work schemes, reimbursing enterprises for costs of equipment, lump-sum aid for unemployed persons starting up a business, apprenticeships for graduates, special programmes and fellowships.
As of December 2011, Hungary had an unemployment rate of 10.9% and there were about 0.5 million registered job seekers. Approximately 19% of them were receiving either job seeker benefits or job seeker aid. As of December 2011, Poland had an unemployment rate of 12.5%. There were 1.9 million registered unemployed persons and 16.4% were receiving unemployment benefits.
Vodopivec (2009) finds that the unemployment insurance schemes in Hungary and Poland were among the most generous among the European transition economies in the 1990s. The study also reports that the insurance programs had a substantial contribution in bringing down poverty rates in Hungary and Poland. 5.2% of the population in Hungary and 3.5% of the population in Poland were drawn out of poverty by unemployment benefits in the mid-1990s.
1 – Informal sector comprises of:
a. Informal dependent employment-employees (persons in a dependent employment relationship) without a contract or who is uncertain of their contract.
b. Family workers- Persons working without a contract for own family’s business
c. Informal self-employment- includes the following two groups:
(i) All non-professional self-employed operating solely;
(ii) Employers with 5 or fewer workers
2 – 794.20 PLN during the first three months and 623.60 PLN during the subsequent months.
1. Hazans, Mihails. Informal workers across Europe: Evidence from 30 European countries. Background paper for In from the Shadow: Integrating Europe’s Informal Labor. 2011
2. Mazza, Jacqueline. “Unemployment Insurance: Case Studies and Lessons for Latin America and the Caribbean”. Inter-American Development Bank Technical Study. May 1999
3. Report on Labour Market Situation based on data from the National Employment Service, National Employment Agency. 2011
4. Social Insurance in Poland. Zakład Ubezpieczeń Społecznych (ZUS Social Insurance Institution). 2012
5. Unemployment Benefits, Fourth Study Commission-Public and Social Law. International Association of Judges. 2011
6. Vodopivec, Milan. “Introducing Unemployment Insurance to Developing Countries”. IZA Policy Paper No.6. April 2009
7. Wolff, Joachim. “Unemployment Benefits and Incentives in Hungary: New Evidence”. William Davidson Institute Working Paper No.111. October 1997
8. Your social security rights in Hungary. European Commission. July 2011