Possibilities and Effects of Reducing Non-Wage Labour Costs

Non-wage labour costs are relatively high in Austria. This is due, above all, to the level of employer contributions to social security, payroll-dependent charges, and the extent of non-productive times. If – in the interest of logical coherence – bonus payments (13th and 14th monthly salaries) are added to base pay, the rate of non-wage labour costs amounts to 61.4 percent of the hourly wage. Relative to the yearly income (corrected for non-productive times), non-wage labour costs (social charges) account for approximately one third of total labour costs. If the anticipated surpluses of the existing funds in the field of social security are used to reduce contributions rather than increase spending, there ought to be some scope for a lowering of non-wage labour costs in the years to come. This applies, in particular, to contributions to the family relief fund, the fund to secure wage and salary payments in the event of insolvency, accident insurance, subsidised housing construction, and – in view of the expected economic upswing – unemployment insurance. Reducing non-productive times is yet another way to lower non-wage labour costs. If all possibilities to reduce contributions are fully utilised in the coming years, non-wage labour costs can be cut by up to ATS 16 billion. In addition, the related reduction of employees' contributions by up to ATS 6 billion would not only result in higher net wages and stronger consumer demand, but also have a moderating effect on the increase of gross wages. However, a reduction of contributions requires a departure from the past practice of using potential surpluses to increase spending and/or transfer payments or redistributing them to the old-age pension system – which in turn limits the scope for budget consolidation. Moreover, the margin available for reductions of contributions cannot be fully utilised, unless appropriate reforms are implemented at the same time to take account of the changing priorities of economic and social policy. Reducing contributions has the added benefit of imposing a more stringent spending discipline, whereas surpluses from earmarked revenues tend to generate further expenditure increases. The effects of a reduction of non-wage labour costs on the economy and the labour market have been calculated on the basis of the WIFO macro-model: • The impact largely depends on whether and to what extent enterprises are willing to pass on the reduction of non-wage labour costs in the form of lower prices, which in turn would have a moderating effect on collective bargaining agreements. If the entire ATS 16 billion margin is used to lower non-wage labour costs and enterprises partly adjust their prices accordingly (as assumed in the model), this will translate into a growth of real GDP by 0.3 percent and an increase in the number of persons in employment by 6,400 (over baseline) after no more than two years. These effects continue to increase in subsequent years. • If the reduction of non-wage labour costs were passed on fully to prices, the effect would be about twice as strong: after two years, real GDP would be about 0.7 percent higher, and the number of jobs would increase by 12,300. The faster the cost reduction is passed on to buyers in Austria and abroad, the more favourable the effects on economic growth and employment.Möglichkeiten und Auswirkungen einer Senkung der Lohnnebenkosten; Possibilities and Effects of Reducing Non-Wage Labour Costs

The Economic Stimulus Packages 2001 and 2002

Faced with an economic slowdown, the Austria federal government implemented two economic stimulus packages in 2001 and 2002 respectively. These packages provide for additional public expenditure, most of which has been advanced by one or two years, particularly with regard to public transportation infrastructure as well as the construction sector. Moreover, various tax incentives aiming to improve the supply-side conditions were introduced or expanded. A survey conducted by WIFO found a remarkably high number of enterprises indicating that they were adequately informed of the most important tax incentives (tax allowance and premium for R&D, premium for apprentices, premium for external and internal training measures, premium for incremental investment). The extent to which tax allowances and premiums are actually claimed varies, however; the rate is highest for the premium for apprentices.Konjunkturpaket; Wirtschaftspolitik; Österreich