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The following OECD assessment and recommendations summarise Chapter 3 of the Economic Survey of the Slovak Republic 2005 published on 26 September 2005.
Essential labour market reforms have improved work incentives and facilitated conditions for job creation
The Slovak government deserves significant credit for a range of reforms which have clearly enhanced the flexibility of the labour market and improved incentives for the unemployed to seek work. The labour code has made working conditions more flexible and has eased the conditions under which workers can be laid off, thus providing a favourable background for job creation and job reallocation. As regards work incentives, tax and welfare reforms have significantly increased incentives for the unemployed to seek work. It is encouraging that in the past four years net employment creation has picked up, as the balance between job creation in growing activities and job losses in declining sectors has turned positive. More particularly, net employment creation in the private sector has accelerated in the past two years and dominated employment losses in declining and adjusting sectors. The unemployment rate remains nevertheless very high for the low skilled and in the less advanced regions. Additional efforts will be needed to bring about a significant fall in unemployment.
Unemployment has begun to fall but remains very high
HLFS Unemployment as per cent of labour force
Source: OECD, Main Economic Indicators.
Unemployment remains unacceptably high and additional reforms should focus on improving incentives for job creation …
Although the reforms to social security have increased the incentives for people to seek jobs, more needs to be done to increase the availability of jobs for those seeking them. To do this, Slovakia should significantly reduce the costs of low skilled labour. This could be achieved by reducing either the minimum wage or employers' social security contributions for low paid labour. If the minimum wage is cut, the impact on net incomes could be mitigated by the government's proposal to introduce an earned income tax credit. Either of these proposals would help to boost job creation for low skilled workers, who are the most abundant among the unemployed. The fiscal cost of this should be funded through expenditure restraint in less urgent areas such as industrial and agricultural subsidies.
High compulsory social security contributions raise the cost of labour
and reduce incentives for businesses to create new low-skilled jobs
Compulsory social security contributions, as % of gross wage
1. After a transitionary period, the accident insurance rate will depend on the category of risk associated with the employer’s activities.
2. This is insurance against the employers’ insolvency so that employees’ claims can be satisfied.
3. This funds the PAYG pillar of the pension insurance.
…and for better inter-regional labour mobility
Given very large regional differences in unemployment rates, current housing market conditions seem to pose a major obstacle to workforce mobility and, consequently, to the efficient functioning of the labour market. Although some steps have been taken to improve labour mobility, it remains almost impossible for an unemployed person to relocate and find affordable housing in a city where jobs are more plentiful. There is an urgent need for new policies that facilitate the role of the private sector in the housing market. In particular, the civil code on tenant protection should be reviewed to improve the incentives for private sector supply on the rental market. The effective management of privatised multi family housing should also be facilitated. Finally, the current system of subsidies for housing should be wound back, including bonuses for savings schemes, in order to increase housing allowances in the highest cost regions to facilitate labour mobility.
Geographical mobility and unemployment rates in selected OECD countries
1. Proportion of the population aged 15-64 who changed region of residence in the last year. For Australia, Italy and Japan data is for the total number of persons who changed region of residence. Data is for 2003 for all countries except for Italy and France (2002), Japan, New Zealand and Poland (2001) and the Netherlands (1999).
Source: OECD, Employment Outlook, 2005 and Economic Outlook No. 77.
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Return to the Economic Survey of the Slovak Republic 2005
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
To access the full version of the OECD Economic Survey of the Slovak Republic:
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Non-subscribers can purchase the PDF e-book and/or printed book at our Online Bookshop.Government officials can go to OLISnet's Publication Locator
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For further information please contact the Slovak Republic Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Rauf Gonenc and Anne-Marie Brook under the supervision of Wilhelm Leibfritz.
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Economic Policy Reforms: Going for Growth 2008
