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The following OECD assessment and recommendations summarise chapter 3 of the Economic survey of Austria published on 13 July 2007.
A prime objective is to strengthen skills and employability of disadvantaged groups via formal education…
Both academic tests and ultimate labour market outcomes reveal that incomplete education and lack of appropriate skills are a deeper problem in Austria than in comparable countries. A particularly high proportion of youngsters leave compulsory education with poor and uncertified skills, which give them access to neither valid professional and apprenticeship streams, nor, a fortiori, to tertiary education. As a result, too many young people between 15-24 are neither in education nor in employment. Particularly affected by this is the immigrant population, whose children are overrepresented in lower-ranked education streams. It is somewhat disturbing that, contrary to other high immigration countries, the school performance of immigrant pupils does not improve between first and second generations. The new government’s programme intends to strengthen pedagogical content and linguistic training in kindergartens, but does not plan to introduce any compulsory pre-school education years. This assessment of the outcomes of pre-school, primary and secondary education with respect to less well-performing children indicates that deep reforms are needed. Policy action will need to involve both the federal government, as the setter of standards, and sub-central governments, as providers and managers of education services. Schools’ funding will need to reflect the challenges raised by the specifics of their student populations, and new approaches that give schools greater autonomy and accountability to pursue performance objectives in different social and cultural settings are recommended.
… and active labour market policies and adult training
The Austrian government has placed a very strong emphasis on up-skilling through active labour market policies. Many initiatives have been launched, aimed at different target groups. As also confirmed by the experience of other OECD countries, there is evidence that more effective schemes (such as those based on temporary wage subsidies for “real” jobs in the first segment of the labour market as opposed to public works programmes) coexist with less consequential ones. The authorities should make the newly introduced programmes subject to close monitoring and assessment. Furthermore, efforts should continue to broaden the somewhat narrow base of suppliers of adult learning services beyond the entities run by
Work incentives should be strengthened for certain groups
Work incentives in Austria are generally strong today but hampered by various fiscal measures for some groups:
Older workers. The recent pension reform has been a major step forward to reduce fiscal subsidisation of early retirement. However, there are concerns about the new government’s decision to relax some of these measures. In particular, the halving of the discount rate for each year of early retirement (after age 61 and before the legal retirement age of 65) would move the system further away from actuarial neutrality, encourage early retirement, and undermine the goal to increase Austria’s very low employment rate of older workers.
Those who can still retire early for having done “heavy work”. Any widening of the definition of “heavy work” for purposes of early retirement would further reduce the already low labour-market performance of older workers. The government should administer “heavy work” criteria for early retirement very parsimoniously.
Those on disability benefits with some remaining work capacity. “Disability” is the major remaining loophole, as evidenced by the fact that nearly 40% of those who took early retirement in 2005 did so on disability grounds, five percent more than only three years ago. The authorities are aware of the need to reform disability benefit, and established a commission for this purpose. Efforts to tighten eligibility criteria should continue, in particular with regard to putting more emphasis on remaining work capacity.
Some groups of public sector workers. Public sector workers still retire too early and not much effort is under way to place these workers on public or private vacancies. More efforts should be made to keep public sector workers in employment longer.
Mothers of young children receiving childcare benefits. Family support schemes should be structured so as not to discourage activity, and the effective marginal taxation of female second earners who return to work should be reduced. The benefit system should be redesigned such that it helps more to reconcile work and family life for families with small children. This could best be done by using parts of the currently used funds for cash benefits to make more kindergarten services available, especially for children under three.
Recipients of social assistance. The government also plans to centralise social assistance and increase the “means-tested minimum social income” (to 726 € per month), which could reduce work incentives and generate an inactivity trap for low income households. The authorities insist that stringent labour market participation requirements, to be administered by the public employment service, will help to avoid such inactivity traps. They should closely monitor the impact of this measure on labour force participation rates and strictly enforce the work availability tests for which the responsible institutions will also have to be properly resourced. The new organisation of social assistance payments should be used as an opportunity to reform the very high benefit withdrawal rates of the current system.
In general, policy formation should give more consideration to reducing inactivity and poverty traps. The planned tax reform in 2010 will provide a good opportunity to address this issue, by introducing provisions to make work pay, for instance through in-work benefits or tax credits.
Low-skilled workers should not be priced out of the market
The economy’s capacity to offer low cost legal employment for low-skilled workers will determine Austria’s ability to overcome the economic and social marginalisation of less-skilled groups. Even with moderate minimum wages negotiated by social partners at branch level, the labour market for the low-skilled cannot be considered to be cleared, as witnessed by the high share of unskilled among the unemployed. Nevertheless, the government now encourages social partners to negotiate a cross-sectoral minimum wage for a full time work contract of € 1 000 compared with the lowest branch and occupational minimum wages of about € 670. In the view of the government this should mitigate poverty – in particular for women. But it also raises concerns since the absence of a national minimum wage was traditionally considered an important source of flexibility in the Austrian economy, particularly if the shift to a national minimum wage places it de facto on a centralised path. The authorities argue that such risks are limited because: i) negotiated wages set by social partners only constitute a floor for individual branches and actual wages usually exceed negotiated wages. Hence, only a small proportion of workers earn less than €1 000 per month ii) the wage elasticity of labour demand for workers in this income bracket is thought to be low because they are mainly engaged in sheltered professions, and iii) there is no intention to politicise the minimum wage because it will be negotiated by the social partners. Yet, the government should pay the utmost attention to these risks. Concerns about poverty-at-work can be better addressed with in-work benefits. Reduction of the high tax wedge for low-skilled workers should also be a priority for lowering their cost of employment.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English.
The complete edition of the Economic survey of Austria 2007 is available from:
For further information please contact the Austria Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Rauf Gonenc and Rina Bhattacharya under the supervision of Andreas Wörgötter.