Comparing Formal Unemployment Compensation Systems in 15 ...

S OCIAL P OLICY & A DMINISTRATION ISSN 0144–5596 DOI: 10.1111/spol.12010 VOL. 48, NO. 1, FEBRUARY 2014, PP. 44–66

Comparing Formal Unemployment Compensation Systems in 15 OECD Countries Umut Riza Ozkan School of Public Policy and Administration, Carleton University, Ottawa, Canada

Abstract This study contributes to the welfare regime literature by analyzing unemployment compensation programmes – unemployment insurance (UI)/assistance (UA) programmes and redundancy pay schemes – of welfare state/occupational welfare regimes. It covers 15 countries of the Organisation for Economic Co-operation and Development (OECD) selected from Southern European, Liberal, Continental-corporatist and Social Democratic country clusters. In contrast to the common argument that Southern European countries have underdeveloped formal unemployment compensation systems, this study argues that they (especially in Spain, Portugal, and to some extent Italy) are comparable in strength to those in Continental-corporatist countries if occupational welfare programmes – notably redundancy pay – are considered alongside welfare state programmes for unemployment protection. The study also outlines the characteristics of redundancy pay schemes in the four country clusters and shows how different redundancy pay schemes are linked to UI/UA schemes in these clusters.

Keywords Welfare state regime; Occupational welfare regime; Unemployment compensation; Unemployment insurance; Unemployment assistance; Redundancy pay Introduction The past two decades have witnessed extensive work on welfare state regimes. The ‘welfare state regime’ literature has focused on the programmes of social protection that address different social risks such as disability, old age, sickness and unemployment (Esping-Andersen 1990, 1999; Korpi and Palme 1998; Bannink and Hoogenboom 2007). Meanwhile, the studies on ‘occupational welfare’ have examined non-wage benefits provided by firms (e.g. Titmuss 1958; Sinfield 1978; Mann 1992; May and Brunsdon 1994; Shalev 1996; Farnsworth 2004; Brunsdon and May 2007; Greve 2007). Thus far, however, few scholars have tried to integrate research on both the welfare state and occupational welfare (e.g. Shalev 1996; Gough 2004; Greve 2007). Author Email: [email protected] © 2013 John Wiley & Sons Ltd

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A focus on unemployment compensation programmes represents one avenue to bridge these two literatures because the existence of redundancy pay and UI/UA programmes clearly demonstrates the mixed economy of welfare for unemployment compensation. On the one hand, these programmes fulfill the welfare function by providing compensation for the unemployed, while on the other hand they help to shape entry into and exit out of the labour market. To date, some joint analyses of unemployment benefit programmes of welfare state/occupational welfare regimes have been conducted (Van Audenrode 1994; Gough 2004; Blanchard and Tirole 2006). However, most of this work has focused on their distortionary impact on the functioning of the labour market. In the mainstream labour economics literature, redundancy pay schemes have often been blamed for increasing dismissal costs, therefore, discouraging employers from hiring new workers (OECD 1994: 33–4). Similarly, UI/UA programmes have been criticized for creating work disincentives and increasing unemployment duration periods, thereby augmenting worker reliance on the state (Vroman 2002; Vodopivec et al. 2003; Arcanjo 2012: 2). Not surprisingly, these studies recommend re-designing employment protection legislation and programmes to allow for dismissals, and re-organizing unemploymentrelated benefit structures to increase work incentives (OECD 1994: 50–2). To date, however, there is little consensus in the labour market economics literature about whether the existing job security programmes, such as redundancy pay, and legislation lead to distortions in the functioning of the labour market. On the one hand, various studies have found that employment protection legislation does not create significant dismissal costs that impact employment and/or unemployment rates (Abraham and Houseman 1994; Nickell 1997; Addison et al. 2000; Addison and Teixeira 2005). On the other hand, other scholars have concluded that increases in lay-off costs associated with employment protection legislation have had adverse effects on employment (Lazear 1990; Burda 1992; Hopenhayn and Rogerson 1993; Saint-Paul 1995; Heckman and Pagés 2000). The over-emphasis on the labour market costs of unemployment compensation programmes – a key feature of neo-classical economics literature – has served to mask their vital social protection functions. Fortunately, ‘welfare state regime’ scholars have drawn attention to UI programmes as one of the key arrangements (such as sickness payments, old-age payments, disability payments and maternity programmes) established by welfare state regimes to help mitigate social risks (Korpi and Palme 1998; Bannink and Hoogenboom 2007: 25). Yet the role of occupational welfare programmes – especially redundancy pay – in alleviating social risks for dismissed workers has often been understudied in the ‘welfare state regime’ approach (see Gough 2004). This can be attributed to the fact that although mandated by the state, statutory redundancy pay schemes are administered and provided by employers. Notwithstanding this tangible difference, these benefits should be considered in the same light as UI because, regardless of their provider, they fulfill the function of unemployment compensation for workers in case of lost employment. © 2013 John Wiley & Sons Ltd

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Furthermore, much of the recent discussion on redundancy pay in the field of welfare state regime theory has occurred in the context of a ‘flexicurity debate’, and this literature has often considered such programmes as impediments to labour market flexibility (Madsen 2007; Bovenberg and Wilthagen 2008). Therefore, the welfare state regime literature has not sufficiently examined the social benefits of UI and redundancy pay in an integrated manner. To address these problems, this article seeks to analyze the social protection function of these unemployment compensation programmes – UA/UI programmes and redundancy pay. The article focuses on statutory redundancy pay rather than non-statutory redundancy pay that is voluntarily administered by employers or provided as a result of collective agreements. Yet, as an exception, the article covers redundancy pay schemes determined by national collective agreements in Social Democratic countries because, unlike other countries, these collective agreements cover a significant portion of the labour force and these agreements often provide redundancy pay. The article links the unemployment compensation programmes of the ‘welfare state regime’ and the ‘occupational welfare regime’. It examines the unemployment compensation systems of the Southern European (Spain, Portugal, Italy and Greece), Liberal (the UK, Canada, New Zealand and Australia), Continental-corporatist (France, Germany, Belgium and Austria) and Social Democratic countries (Norway, Sweden and Denmark). The analysis shows that redundancy pay schemes have different characteristics in these country clusters in terms of coverage and generosity. Furthermore, these characteristics also provide a better understanding of how different redundancy pay schemes are linked with UI/UA schemes, and how they form different clusters of ‘mixed economy of welfare’ (Powell 2007) for unemployment compensation. The article is structured as follows. In the first section, the concepts of ‘mixed economy of welfare’ and ‘social division of welfare’ are introduced to provide a broader framework for outlining the schemes of unemployment compensation. Next, there is a brief discussion about the classification of unemployment compensation systems for Southern European, Liberal, Conservative-corporatist and Social Democratic countries in terms of their UI/UA programmes and redundancy pay schemes. Building on this classification, the final section analyzes the unemployment compensation programmes of the four country clusters in more detail.

The Mixed Economy of Welfare The term ‘welfare state regime’ was coined in Esping-Andersen’s pioneering work, The Three Worlds of Welfare Capitalism (1990). In his book, he analyzed welfare state programmes by focusing on the notions of decommodification, stratification and public private-mix (Esping-Andersen 1990). His concept of decommodification referred to ‘the degree to which distribution is not linked to market mechanism’, while stratification implied the degree to which ‘one’s status as a citizen will compete with, or even replace, one’s class position’ (Esping-Andersen 1990: 105–6). Also, he identified public-private mix (or the 46

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state-market nexus) in a narrower sense, which is based on the distinction between public and private provision of social security benefits, especially in pension systems. In his following research, Esping-Andersen broadened the scope of his analysis of ‘welfare state regime’ analysis into the study of ‘welfare regimes’. For instance, in ‘Welfare States and Employment Regimes’ Kolberg and Esping-Andersen (1992) studied the interaction and interrelationship between welfare state regimes and labour market institutions. Without doubt, in his later work, Social Foundations of Post-Industrial Economies, Esping-Andersen (1999) developed his conceptualization of welfare regimes by incorporating the concepts of ‘welfare mix’ and ‘social risks’ (Powell and Barrientos 2004: 86). The ‘welfare mix’ went beyond his narrower notion of ‘public-private mix’ (Powell and Barrientos 2004). Accordingly, ‘welfare mix’ underlines the interaction among the state, market, and family in addressing and allocating different social risks of welfare provision (Esping-Andersen 1999: 35). Similar to Esping-Anderson’s understanding of ‘welfare mix’, the concept of ‘mixed economy of welfare’ examines the welfare production mechanisms of the state, market, voluntary and informal sectors (Pinker 1992; Fanning 1999; Powell 2007). The concept challenges the notion that welfare is only provided by the state; instead, it pays attention to the plurality of welfare production programmes of different sectors. Furthermore, the literature on ‘mixed economy of welfare’ embraces the notion of ‘social division of welfare’ developed by Richard Titmuss (1958) who focuses on social (or public), occupational and fiscal components of welfare production (Powell 2007). Public welfare refers to the provision of services by the welfare state; fiscal welfare refers to the benefits provided through the taxation system; and occupational welfare includes fringe benefits received by an employee from his or her employer as a result of his or her employment, including occupational and statutory sick pay, statutory maternity pay, redundancy pay, occupational health services, study leave, etc. (Powell 2007; Brunsdon and May 2007: 154–8). The area of unemployment compensation provides a vivid example of ‘mixed economy of welfare’ since different schemes of the welfare state and occupational welfare co-exist to fulfill the unemployment protection function. In the ‘welfare state’ literature, UI/UA programmes have gained sufficient attention as one of the key arrangements established by welfare state regimes to help mitigate social risks. Together with pension and sickness pay programmes, UI/UA schemes constitute the three pillars of Esping-Andersen’s (1990) welfare state regime typology. In his decommodification index, EspingAndersen (1990) uses five indicators (qualifying period, duration of benefits, net income replacement rates, waiting days and coverage rate) to measure the protection provided by UI/UA schemes. His decommodification index demonstrates that there are substantial differences between UI-based and UA-based compensation systems in terms of net replacement rates, duration of benefits, qualifying periods and coverage. To understand why such differences exist, it is necessary to outline the features of UA and UI programmes. UI and UA programmes are based on two different principles of unemployment. UI is based on the ‘insurance’ principle that aims to compensate © 2013 John Wiley & Sons Ltd

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income ‘by replacing a portion of an eligible worker’s lost wages attributable to unemployment’ (Vroman 2002: 1), and it often requires a certain period of employment and/or contributions preceding unemployment. Unlike UI, UA schemes rely on the ‘welfare’ principle that aims to mitigate poverty by providing minimum flat rate benefits with often no limitations for the duration of payments. In parallel to this, claimants must prove that their means are below specified thresholds to qualify for benefits (Vroman 2002: 2). New Zealand and Australia are well-known examples for the use of UA systems. Yet, in countries with UI systems, there are often second-tier UA programmes that aim to complement the protection provided by UI schemes. There is also another classification for UI programmes: compulsory and voluntary UI systems. Voluntary UI, also known as the Ghent system, is subsidized by the state and its benefits are provided by trade unions, while compulsory UI requires mandatory contributions by employees and employers to the UI scheme and it is often administered by the state. Swedish and Danish UI funds are some examples of the Ghent system, while Germany, Austria, Canada, the UK, France, Spain, Portugal, Italy, Greece, Norway and Belgium have compulsory UI schemes. Belgium is an interesting case as it has a quasi-Ghent system where UI is compulsory but trade unions still play an important role in providing unemployment benefits (Van Rie et al. 2011). In the ‘occupational welfare’ literature, redundancy pay is considered to be an unemployment benefit scheme provided by firms (Sinfield 1978: 135; Brunsdon and May 2007: 154; Lindquist and Wadensjö 2007; Holzmann et al. 2012). It is a lump-sum payment made to employees upon the termination of their contracts, which often takes different names such as severance pay, dismissal compensation, redundancy compensation, termination benefits, seniority pay, indemnities and leaving allowances. This stems from the fact that severance/redundancy pay schemes often undertake ‘concurrently multiple functions’ (Holzmann et al. 2012: 17; EPLEX 2011). Nevertheless, regardless of its multiple functions, similar to UI/UA schemes, redundancy/ severance pay provides income compensation to employees upon the loss of their employment (Holzmann et al. 2012: 2). Redundancy pay can become mandatory either through national legislation or collective agreements. Redundancy pay schemes can also be provided to workers voluntarily by firms. In many countries, mandatory redundancy pay has been historically regulated by legislation; nevertheless, Social Democratic countries have followed a different path by establishing redundancy pay provisions through central collective agreements. Considering the fact that collective agreements cover 72 per cent, 82 per cent and 92 per cent of the total labour force in Denmark, Norway and Sweden respectively1 (Venn 2009: 16–18) and these agreements often have redundancy pay provisions, we should assess these central collective agreements in the same category of statutory redundancy pay. Among Social Democratic countries, only Denmark has enacted statutory severance pay, which is regulated by the White Collar Act 1964 (Funktionaerloven). In Denmark, social partners have also recently incorporated, for the first time, redundancy pay provisions for blue-collar workers into a collective national agreement. In Sweden, central collective agreements, which cover a majority 48



of the labour force, provide redundancy pay (Sigeman 2002: 274). In Norway, the largest employer, the Confederation of Norwegian Enterprise (NHO), and the Norwegian Confederation of Trade Unions (LO) have negotiated redundancy pay provisions through Severance Agreements since 1966. Overall, Social Democratic countries have unique unemployment compensation systems, as their unemployment compensation programmes (UI and redundancy pay schemes) are mostly administered and regulated by labour market institutions (such as trade unions and/or collective agreements) rather than the state.

Comparative Welfare State/Occupational Welfare Mix for Unemployment Compensation Gallie and Paugam (2000) synthesize cross-national similarities and differences in UI/UA programmes and active labour market policies by grouping countries into four unemployment welfare ‘regimes’ based on three criteria – ‘the proportion of unemployed who receive benefits’, ‘the average expenditure on benefits per unemployed person as a percentage of per capita gross domestic product’ and ‘expenditure on active employment policies as a percentage of gross domestic product’ (Gallie and Paugam 2000: 7). The four regimes are the ‘sub-protective regime’ (Southern European cluster), the ‘liberal/minimal regime’ (Liberal cluster), the ‘employment-centred regime’ (Continental-corporatist cluster) and the ‘universalistic regime’ (Social Democratic cluster). This typology helps conceptualize differences in unemployment benefit schemes across countries. The release of data after it was developed suggests that it may require updates and revisions. Also, this article argues that the indicator showing ‘average expenditure on unemployed person’ used by Gallie and Paugam (2000) does not provide a good measure to understand the level and duration of unemployment compensation; rather, two different indicators including ‘rate of benefits in terms of base earnings’ and ‘the duration of benefits’ are used. These indicators are discussed in more detail in the following section. In particular, their typology strongly suggests that Liberal countries have relatively stronger unemployment benefit systems than Southern European countries. However, in contrast to the notion that Southern European countries have underdeveloped formal unemployment compensation systems (Karamessini 2008; Palme et al. 2009), Southern European countries have improved coverage and generosity levels of their UA/UI schemes over the last 15 years to the point where they reach or exceed those of Liberal countries. For instance, some Southern European countries (like Spain and Portugal) resemble the Continental-corporatist countries in terms of the level and duration of coverage (despite still having lower coverage rates when compared to Continental-corporatist countries), while the other Southern European countries, Italy and Greece, have similarities with Liberal countries with regard to their coverage rates and generosity of their UI/UA schemes. Based on the new data the characteristics of four unemployment welfare regimes are briefly identified (see table 1). (In the following section, the recent data showing the features of UI/UA schemes in these regime clusters will be elaborated.) © 2013 John Wiley & Sons Ltd

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SOCIAL P OLICY & A DMINISTRATION, VOL. 48, NO. 1, FEBRUARY 2014 Table 1 Features of UI/UA schemes in unemployment welfare regimes Regime

Liberal/minimal Southern European Continental/corporatist Social Democratic

Coverage

Incomplete Incomplete or variable Variable Comprehensive

Level and duration of coverage Weak Weak or unequal Unequal High

Source: adapted from Gallie and Paugam 2000: 5.

In the Liberal regime, UI/UA schemes often do not provide coverage for most of the unemployed, and they offer very limited financial assistance compared to other regimes. As the underlying logic of Liberal regimes is ‘to encourage the unemployed to take responsibility for themselves in order to avoid becoming dependent on social assistance’, the unemployment benefits are often based on means testing (Gallie and Paugam 2000: 6). In the Southern European regime, UI schemes cover a small proportion of the unemployed population (Gallie and Paugam 2000: 5) due to the strict eligibility criterion based on employment and contribution records. The duration of benefits is short and dependent upon the unemployed person’s years of employment and/or contribution to the unemployment insurance scheme. Yet their level of unemployment payment (especially Portugal and Spain) is higher than Liberal countries. Furthermore, most of the Southern European countries have second-tier UA schemes, as well as UI schemes, which increase the duration of payment for the unemployment period among those countries. The Continental-corporatist regime provides higher levels of compensation than the Liberal/minimal regime and the Southern European regime. Yet UI benefits do not cover the whole unemployed population (but their coverage rate is still higher than Southern European countries) as the eligibility of UI schemes is based on the previous employment experience and contributions (Gallie and Paugam 2000: 6). Similar to Southern European countries, their system tends to favour ‘those who have built up the greatest rights’; therefore, it creates ‘insider’ and ‘outsider’ dichotomy (Gallie and Paugam 2000: 6). Lastly, according to Gallie and Paugam (2000: 4), when compared to the other three regimes, the Social Democratic regime tends to offer relatively higher rates of coverage, which can be partly explained by the loose eligibility criteria of UI schemes. The level of benefits is high and the duration of unemployment compensation is not dependent on the unemployed person’s employment and/or contribution record. Nevertheless, the four classifications described above do not pay attention to the occupational welfare programmes, which also undertake the function of providing unemployment benefits to the unemployed, especially redundancy 50


SOCIAL P OLICY & A DMINISTRATION, VOL. 48, NO. 1, FEBRUARY 2014 Table 2 Features of redundancy pay schemes in unemployment welfare regimes Regime Liberal/minimal Social Democratic Continental/corporatist Southern European

Coverage

Level of coverage

Incomplete Incomplete (targeted) Variable Comprehensive

Weak Weak or unequal Unequal High and unequal

Source: adapted from Gallie and Paugam 2000: 5.

pay schemes. Following this logic, this study aims to integrate redundancy pay schemes and UI programmes within a broader comparative perspective of unemployment compensation systems. Building on the typology developed by Gallie and Paugam (2000), this article argues that redundancy pay schemes possess different characteristics and, therefore, they are integrated differently than the UI/UA schemes in the four unemployment welfare state/occupational welfare regimes (see table 2). In the Liberal cluster, the characteristics of redundancy pay schemes fit into the minimal understanding of welfare. The coverage of redundancy pay schemes is quite low and its benefits for dismissed workers are very limited. In that regard, similar to UI/UA programmes, redundancy pay schemes do not provide significant income protection for dismissed workers. In the Social Democratic cluster, coverage is also quite limited; however, unlike Liberal countries, redundancy pay schemes are often targeted to provide unemployment compensation to older workers with long-term employment records. Furthermore, the redundancy pay benefits often complement UI benefits by covering the difference between the unemployment benefit and the monthly wage (or certain percentage of the monthly wage stated in the UI legislations). This is because UI benefits often have ceilings for monthly payments, which reduce the high waged workers’ UI benefits in terms of percentage of their monthly wages. In that regard, the aim of the redundancy pay schemes is to provide a means to sustain the highwaged worker’s previous living standards. This feature also favours older workers with long-term employment as they tend to earn more. In the Continental-corporatist cluster, the coverage of redundancy pay schemes is higher than Liberal and Social Democratic countries; however, the redundancy pay schemes still do not cover certain sections of the labour force due to various eligibility criteria such as minimum firm size, minimum tenure, exclusion of certain sectors and reasons of dismissal. Such qualifying conditions could disadvantage youth (due to their limited tenure in the firm) and workers in the informal economy, which often covers small enterprises and agricultural and domestic sectors. Also, the benefit provided by redundancy pay is higher than Liberal countries and Social Democratic countries. Given the coverage type and benefit levels, redundancy pay schemes could intensify © 2013 John Wiley & Sons Ltd

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the already existing ‘insider’ and ‘outsider’ dichotomy. Overall, in the Continental-corporatist cluster, redundancy pay tends to increase the benefits of certain sections of the labour force that may already be obtaining benefits from unemployment. Among Southern European countries, redundancy pay coverage is comprehensive (except Greece). Most of the Southern European countries have very loose eligibility conditions and do not exclude certain sections of the labour force. Compared to other country clusters, Southern European countries have high levels of employment coverage per year in terms of both minimum and maximum redundancy payment. Yet there are still inequalities in terms of payment among the Southern European countries. Workers with longer employment records receive more protection than younger workers, as redundancy payment increases regularly for each year of employment. In the following section, the unemployment compensation schemes of the selected countries are analyzed by mainly using certain data sources including the Mutual Information System on Social Protection in the Member States of the European Union (MISSOC), information from the OECD, as well as the Employment Protection Legislation Database (EPLEX) of International Labour Organization. Moreover, where it is necessary, data from national statistical institutes are used to complement the international databases.

UI/UA Programmes In this study, the coverage and generosity of UI/UA programmes of four country clusters are analyzed as the degree and generosity of coverage are important in understanding ‘how welfare state affects the experience of unemployment’ (Gallie and Paugam 2000: 4–5). An unemployed person who does not receive or who has stopped obtaining unemployment benefits is likely to be adversely affected by his or her experience of unemployment. Also, when the replacement of earnings is not high and the duration of unemployment payments is not sufficiently long enough, the unemployed person is more likely to suffer from the consequences of unemployment, as he or she will not be able to obtain similar living standards compared to the time he or she worked (Gallie and Paugam 2000: 4–5). Therefore, which indicators are the most appropriate for measuring the level of coverage and generosity of UI/UA schemes? It has been suggested that the qualifying period is a good measure to use in understanding what extent UI programmes are effective in covering the unemployed population (Clasen et al. 2001; Arcanjo 2012). Even though the qualifying period criterion provides valuable clues about the obstacles facing unemployed people in accessing UI benefits, it does not specify to what extent the unemployed actually receive UI/UA benefits. Furthermore, because UA systems do not have ‘qualifying periods’, this criterion cannot be used to measure the extent to which each of these two systems – UA and UI – limit access to unemployment benefits. In addition, most of the countries that have UI programmes have lower-tier UA programmes such as Portugal, Spain, Greece, Germany, France and the UK.2 The qualifying period requirement also does not apply to these lower-tier UA programmes. 52



Scholars also employ the ‘actual unemployment coverage rate’ as an indicator, which is equal to the percentage of people in the labour market insured for unemployment benefits (Esping-Andersen 1990; Scruggs and Allan 2006). Yet this indicator is also unable to measure whether the unemployed actually benefit from unemployment protection programmes because it only focuses on the proportion of people insured for unemployment in the total labour force but not what percentage of these insured people actually receive the benefits when they become unemployed. Instead, this study uses ‘effective coverage’ as an indicator that calculates the proportion of the unemployed receiving unemployment benefits in the total labour force (Gallie and Paugam 2000). Effective coverage may be a better measurement tool because in many countries ‘effective coverage is often substantially lower than legal coverage . . . But even in countries where the legal coverage is high, only a minority of those classified by labour force surveys as unemployed are actually receiving benefits from statutory unemployment benefit schemes’ (ILO 2011: 61). To measure the level of generosity, scholars used ‘the average expenditure on benefits per unemployed person as a percentage of per capita gross domestic product’ (Gallie and Paugam 2000); nevertheless, this indicator has been criticized for certain limitations: ‘expenditure rises due to increasing levels of unemployment without any change in eligibility and entitlement rules, with difference in either national growth rates or the taxation of benefits distorting cross-national comparisons’ (Arcanjo 2012: 6). In light of these limitations, the study chooses two indicators to analyze the generosity of unemployment benefits: the rates of benefit (based on reference earnings) and the duration of benefits (Arcanjo 2012). While discussing the coverage and generosity of unemployment benefit schemes, Gallie and Paugam’s (2000: 4) line of argument is followed, which states that ‘the higher the reliance on means-tested benefits, the greater may be the risk that unemployment will be stigmatic’. Accordingly, it is assumed that the countries with higher levels of UI coverage have stronger unemployment benefit systems because UI schemes often provide higher levels of benefits when compared to UA schemes. Based on the criteria outlined above, the features of each regime cluster can now be identified (see tables 3 and 4). In Liberal regime countries, the unemployment benefit systems provide weak coverage for the unemployed. Combined with their first and second-tier unemployment benefit schemes, Liberal countries have generally lower coverage rates than Southern European countries. There is no limit for the duration of benefits for UA schemes in the UK, Australia and New Zealand; however, their rates of benefits are very low (10 per cent, 18 per cent, and 24 per cent) compared to countries in other clusters. The Canadian unemployment scheme provides higher rate of payment (55 per cent) but its duration is very short. Among Southern European countries, unemployment benefit systems have higher coverage than Liberal countries; however, their UI schemes – Spain (42.5 per cent), Italy (31.9 per cent), Greece (34.4 per cent) and Portugal (34.6 per cent) – still only cover a very small portion of the unemployed. Other than Greece, the rates of benefits among Southern European countries are as high as Continental-corporatist countries; however, the duration of benefits is more © 2013 John Wiley & Sons Ltd

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S OCIAL P OLICY & A DMINISTRATION, VOL. 48, NO. 1, FEBRUARY 2014 Table 3 Percentage of unemployed receiving unemployment benefits Country

Unemployment assistance (%)

Total unemployed receiving unemployment benefits (%)

Southern European countries Spain (2007) 42.5 Portugal (2008)* 34.6 Italy (2007) 31.9 Greece (2008)* 34.4

31.0 16.7 1.9 23.6

73.5 51.3 33.3 58.0

Conservative corporatist Germany (2008) France (2008) Belgium (2008)* Austria (2008)

69.0 11.8 0.0 n.a.

99.0 59.7 100.0 94.1

51.4 44.7 0.0 0.0

n.a. 0.0 37.0 68.5

51.4 44.7 37.0 68.5

Social Democratic countries Sweden (2007) 66.0 Norway (2008) 90.0 Denmark (2007) 53.0

0.0 0.0 14.4

66.0 90.0 67.4

Liberal countries UK (2007)** Canada (2007) New Zealand (2007) Australia (2006)

Unemployment insurance (%)

countries 30.0 47.9 100.0 94.1

Notes: n.a. = data unavailable; OECD 2011. * = European Commission 2008; ILO 2009. ** = includes Jobseeker’s Allowance (both UI and UA).

limited. In Italy, most of the unemployed in the labour force receive a maximum benefit of eight months and unemployed workers who are older than 50 only receive 12 months of unemployment compensation. In Greece, the duration of benefits is very short and varies from five to 12 months. In the Portuguese UI scheme, the duration of benefits increases with the age and contributions of the claimant; however, the eligibility criterion is very strict for receiving longer periods of benefits. For instance, a worker who is under 30 years old can only receive 12 months of benefits if he or she has contributed more than 24 months. For the worker who is between the ages of 30 and 40, the duration of benefits is 18 months if he or she has contributed at least 48 months prior to being unemployed (MISSOC 2011). In Spain, the claimant must have contributed to his or her UI scheme for at least 36 months to receive 12 months of payment (OECD 2010c). The Continental-corporatist regime does not cover the whole unemployed population but its coverage rate is still higher than the Southern European countries. Generally speaking, UI schemes tend to favour either older workers or workers with long employment records and contributions. For instance, in 54


S OCIAL P OLICY & A DMINISTRATION, VOL. 48, NO. 1, FEBRUARY 2014 Table 4 Payment rates and duration of payments for UI/UA schemes Payment rates (% of earnings) Southern European countries Spain 70 and then 60 (after 6 months) Italy 60 and then 50 (after 6 months) Portugal 65 Greece

27

Conservative corporatist countries Germany 60 France

Between 57 and 75

Belgium

60 and then 53.8 (after 1 year) 55

Austria Liberal countries UK Canada

10* 55

New Zealand Australia

24* 18*

Social Democratic countries Norway 62 Sweden 80 and then 70 (after 9 months) Denmark 90

Duration of payments (in months) 4 to 24 Insurance work 8 or 12 Age 9 to 30 Insurance work and age 5 to 12 Insurance work and age 6 to 24 Insurance work and age 4 to 36 Insurance work and age No limitation 5 to 12 Insurance work and age 6 (maximum) 3.5 to 11.1 Insurance work No limitation No limitation 24 10 24

Source: MISSOC 2011; OECD 2010b, 2010c. Note: * = % of average wage.

Germany, workers younger than 50 years old can receive 10 months of insurance benefit in return for at least 20 months of insurance contribution, whereas workers who are aged 50 or over and have contributed to their insurance for at least 30 months receive 15 months of payment (MISSOC 2011). Similarly, in France, the duration of unemployment benefits changes (from four months to 36 months) with respect to age and contribution. In Austria, a worker’s total contribution over the previous two-year period must equal the equivalent of one year’s worth of premiums. Once the premium threshold has been attained, the worker is entitled to 20 weeks of benefits. Beneficiaries who contribute nine years and are at least 50 years of age receive © 2013 John Wiley & Sons Ltd

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one year of payment. Nevertheless, the Belgian UI scheme is an exception. It supports younger workers more than the schemes of other Continentalcorporatist countries. This is because the long employment record does not translate into more benefits under the Belgian UI scheme since the duration of benefits is not based on the age and employment record of the worker (OECD 2010c). The Social Democratic countries have the most comprehensive UI coverage among the country clusters, which can be explained by the loose eligibility criteria of their UI schemes. Also, their rates of benefits are very high (62 per cent for Norway, 80 per cent for Sweden and 90 per cent for Denmark). Unlike the Southern European and Continental-corporatist countries, the UI schemes are ‘comprehensive’; that is, they provide unemployment benefits to all citizens regardless of their age and contribution/employment record. For instance, in Denmark the unemployed, who are eligible for the UI scheme, can receive up to 24 months; and to re-qualify for benefits, the worker only has to prove that he or she has spent six months ‘in paid employment with the duration of three years’ (OECD 2010c). In Sweden, the duration of payment (10 months) from the UI scheme is independent of age. The Swedish scheme provides a longer duration of benefits (15 months) for people who have children (OECD 2010c). Only in Norway, the benefit period (six months or 12 months) depends on how much wage the worker has earned before becoming unemployed. In addition, the benefits can be renewed as long as the unemployed person continues to fulfill the eligibility conditions for the UI scheme and his or her working hours have been decreased ‘by 50 percent as compared to previous working hours, or by at least 40 percent during the lay-off periods’ (OECD 2010c: 4).

Redundancy Pay Similar to the analysis for the UI/UA, redundancy schemes are also assessed in terms of their coverage and generosity. To measure the coverage of the redundancy rate, ‘legal coverage’ is used, which consists of the proportion of the labour force covered by the redundancy payment as defined by the related legislation. Unfortunately, unlike UI schemes, there are no comparable data available to measure ‘effective coverage of redundancy pay’ – the proportion of redundancy pay recipients in the unemployed population. Instead, to analyze the coverage of redundancy schemes, different eligibility criteria are examined (e.g. size of firms, reasons behind dismissal, excluded sectors and minimum tenure requirement). In order to compare the relative ‘generosity’ of each cluster’s statutory redundancy schemes, both the minimum payment for one year of employment and the maximum payment for over 20 years of service are considered. This represents a balanced way of measuring unemployment compensation, which accounts for available benefits for both senior and new workers in a firm in case of dismissal. In general, newer workers tend to receive amounts closer to the minimum redundancy pay, whereas senior workers are more likely to obtain benefits closer to the maximum redundancy pay. 56


S OCIAL P OLICY & A DMINISTRATION, VOL. 48, NO. 1, FEBRUARY 2014 Table 5 Benefits of and eligibility requirement for statutory redundancy pay Minimum tenure requirement (in months) Southern European cluster Spain 6

Italy

12

Portugal Greece

12 12

Corporatist cluster Germany 6 France 12 Belgium Not applicable Austria 48 Liberal cluster UK

24

Canada (federal) New Zealand Australia

12 – 12

Social Democratic cluster Norway Not applicable Sweden Not applicable Denmark 144

Benefits (in days’ wage per year of service) 12 for fixed-term contracts 12 for permanent employment promotion contracts 33 or 45 for permanent regular contracts up to 720 days 12 months’ salary is divided by 13.5 plus 1.5% for each year’s service plus compensation for inflation 30 up to 600 5 up to 105 (blue-collar workers) 30 up to 90 (white-collar workers) 15 up to 300 6 up to 160 No statutory redundancy pay 15 up to 270 3.5 and maximum 10.5 (based on the age of the worker) 5 up to 40 (max.) No statutory redundancy pay 30 up to 90 (max.) No statutory redundancy pay No statutory redundancy pay 30 up to 90 (white-collar workers)

Source: OECD 2008a, 2008b, 2010a: 101; EPLEX 2010, 2011; Holzmann et al. 2011; Fair Work Ombudsman 2011; Human Resources and Skills Development Canada 2012.

The data from table 5 reveals that, in the Liberal cluster, the characteristics of redundancy pay schemes fit well to the minimal understanding of ‘welfare’. The coverage of redundancy pay schemes is quite low. Among Liberal countries, the eligibility criteria are relatively more stringent than Continental European countries. In the UK, workers are entitled to receive redundancy pay if they work for at least two years in the same firm and their dismissal is related to economic reasons (EPLEX 2011; Holzmann et al. 2011). In addition, police officers, marines, members of the navy, military and air force (which was around 1 per cent of the total labour force in 2008) are not covered by redundancy payment (Office for National Statistics 2008; Hall 2009; Holzmann et al. 2011). In Australia, firms with less than 15 workers, approximately © 2013 John Wiley & Sons Ltd

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53 per cent of the total labour force in 2011 (Australian Government 2011), are not included in the scope of redundancy pay. At the federal level, Canada requires a minimum employment requirement of one year and the dismissal has to be based on a just cause (dismissal without notice) (EPLEX 2011), which makes it quite difficult for the dismissed workers to receive redundancy pay benefits. At the provincial level, there is redundancy pay only in Ontario. Furthermore, the generosity of redundancy pay among Liberal countries is very low. The minimum amount of benefit ranges from 3.5 days’ wage to 30 days’ wage, while the maximum amount of benefit is between 10.5 days’ wage and 90 days’ wage. In that regard, similar to UI/UA programmes, redundancy pay schemes do not provide significant income protection for dismissed workers in Liberal countries. Southern European countries have the most comprehensive coverage among the country clusters, as they have very flexible eligibility requirements for redundancy pay. Other than Spain and Portugal, Southern European countries’ redundancy pay schemes do not have any eligibility criteria related to reasons for dismissal (OECD 2008a; EPLEX 2011). In Spain and Portugal, workers are unable to receive redundancy pay only when they are dismissed for disciplinary reasons (EPLEX 2011). Also, there are no restrictions for redundancy pay in terms of firm size, as well as excluded sectors of the economy (Holzmann et al. 2011; OECD 2008a; EPLEX 2011). Furthermore, the minimum tenure to be eligible for redundancy pay is very low among Southern European countries (except Spain which has a requirement of six months). In addition, Southern European countries tend to have the most generous statutory redundancy pay schemes. In Spain, Portugal and Greece, dismissed permanent workers are eligible for a minimum benefit of 30 days’ wages for one year of employment (only for white-collar workers). Furthermore, two Southern European countries, Spain and Portugal, provide the highest maximum benefits amounting to 600 and 720 days’ wage for 20 years of employment, respectively. In the Italian system, there is an end-of-anemployment contract (trattamento di fine rapporto) indemnity that is paid to workers upon termination of their contracts. Despite the fact that employees fund this indemnity, it still serves the function of providing unemployment compensation to workers when they lose their jobs. The amount of indemnity payment is calculated by dividing the 12-month salary by 13.5 and then by adding 1.5 per cent for each year of service and compensation for inflation (EPLEX 2010). Among Southern European countries, the Greek redundancy pay scheme resembles the features of those in the Liberal countries. Similar to their UI schemes, Continental-corporatist countries have variable coverage for dismissed workers. Certain portions of the labour force are faced with stricter eligibility requirements when compared to Southern European countries. For instance, in Germany firms with less than 10 workers are excluded from redundancy pay coverage (Holzmann et al. 2011), which is around 18 per cent of the total labour force (Statistishes Bundesamt 2012). Also, unlike Southern European countries, in Germany workers are not permitted to obtain redundancy pay if they are dismissed for reasons associated with their capacity or their misconduct. In France, the only eligibility criterion is whether or not workers have engaged in misconduct. In Austria, 58



workers have to work at least four years to receive redundancy pay. Also, domestic and agricultural workers, which are around 5 per cent of the total labour force (Statistics Austria 2012: 193), are out of the scope of redundancy pay in Austria (Holzmann et al. 2011). Continental-corporatist countries are generally second behind Southern European countries, in terms of the ‘generosity’ of benefits. The minimum benefit ranges from only six to 15 days per year of employment, and the maximum benefit ranges between 160 and 300 days. As stated above, statutory redundancy pay is almost non-existent in Social Democratic countries. The only example of statutory redundancy pay among Social Democratic countries is Denmark which has a very strict criterion of eligibility compared to the countries in other clusters. The minimum tenure requirement of redundancy pay in Denmark is 12 years of employment with the same employer (EPLEX 2011). Also, the redundancy payment is limited to white-collar workers, which represented only 51 per cent of the total labour force in 2008 in Denmark (Stats Denmark 2012). Nevertheless, despite the absence of statutory redundancy pay schemes, Social Democratic countries often have redundancy pay schemes that have been established through collective agreements. These schemes are often targeted at workers who are older and/or have long employment records. In the Danish case, prior to 2010, collective bargaining agreements did not include employment protection provisions related to redundancy pay (Albæk et al. 2002: 474). Nevertheless, in 2010, social partners – the Central Organisation of Industrial Employees (CO) and the Confederation of Danish Industry (DI) – reached a collective national agreement in the manufacturing sector, which involved redundancy pay becoming ‘part of national agreement in the sectors covered by the Confederation of Trade Unions (LO) and the Confederation of Danish Employers (DA)’3 for the first time. Redundancy pay functions as a ‘supplement to the unemployment benefit and covers 85 per cent of the difference between the unemployment benefit and the wage of the redundant person’. Redundant employees with three, six and nine years of employment record receive this amount of redundancy pay for one, two and three months, respectively (Jørgensen 2010; Jørgensen and Milling 2011). In the Swedish case, four main national collective agreements, which covered approximately 75 per cent of the total labour force in 2007, provides redundancy pay benefits (Lindquist and Wadensjö 2007). Two of these national collective agreements, which cover blue- and white-collar workers in the private sector, target workers who are older than 40 years old with long records of employment for redundancy pay, while the other two collective agreements for public sector workers (central government employees and local government workers) have looser redundancy pay eligibility criteria (e.g. at least a one-year employment record for central government workers and at least 36 months of employment for local government workers aged 24 or older). In terms of benefits, blue-collar workers receive benefits between 90 per cent and 140 per cent of a monthly average worker’s wage (Lindquist and Wadensjö 2007: 9; OECD 2010c). The amount of benefits white-collar workers receive varies with the age of the worker: people who are older than © 2013 John Wiley & Sons Ltd

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40, 45 and 60 years old receive redundancy pay benefits for six, 12 and 18 months, respectively (Lindquist and Wadensjö 2007). Among public sector workers, together with UI, the amount of redundancy pay compensates 80 per cent of the monthly wage during the first 200 days and 70 per cent of the wage during the following 100 days (Lindquist and Wadensjö 2007: 11). In other words, redundancy pay is given to high-waged workers who cannot receive 70 or 80 per cent of their wages due to the benefit ceiling of the unemployment insurance scheme. Municipality and county workers receive one third of monthly wages per year of employment; however, it cannot exceed six months of wages for dismissed workers (Lindquist and Wadensjö 2007: 13). In Norway, there is a Severance Agreement between the largest employer, the NHO, and the LO that covers certain sectors such as ‘mining, manufacturing, electricity, gas, and water supply, construction, transport, storage, communications, and other services’ (Venn 2009: 18). To be eligible for severance pay, the workers – who lost their jobs for economic reasons (e.g. bankruptcy, downsizing) or health issues – must be older than 50 years old and have long records of employment (Sluttvederlag 2011). The amount of benefit is determined by the age of the worker; however, benefits are very low for all age categories. At the beginning of 2011, the rate of severance/redundancy payment varied from one third of a monthly average worker’s wage to one and a half of a monthly average worker’s wage (OECD 2010c; Sluttvederlag 2011).

Conclusion This study contributes to the welfare regime literature by linking ‘welfare state’ and ‘occupational welfare’ regimes in the area of unemployment compensation. Specifically, it examines the unemployment compensation schemes of the welfare state/occupational welfare regimes of Southern European, Continental-corporatist, Liberal and Social Democratic countries. On the basis of unemployment compensation provided by the two components – UI/UA schemes and redundancy pay – the following conclusions can be made. In Liberal regimes, UI/UA schemes often do not provide coverage for most of the unemployed. Furthermore, their rates of benefits are very low compared to other regimes. Similarly, the features of redundancy pay schemes fit into the minimal understanding of welfare. Coverage of severance pay schemes is also quite low due to strict eligibility criteria and benefits for dismissed workers are very limited. In that regard, similar to UI/UA programmes, redundancy pay schemes do not provide significant income protection for dismissed workers. In Southern European regimes, UI schemes cover a small proportion of the unemployed population (Gallie and Paugam 2000: 5) due to strict eligibility criterion based on long employment and contribution records. The duration of benefits is short and also dependent upon the unemployed person’s years of employment and/or contribution to the unemployment insurance scheme. Yet, their level of unemployment payment (especially in Portugal and Spain) 60



is higher than Liberal countries. Furthermore, most of the Southern European countries have second-tier UA schemes, as well as their UI schemes, which increase the duration of payment for the period of unemployment among Southern European countries. Unlike UI schemes, the redundancy pay schemes of Southern European countries have comprehensive coverage (except Greece). This is because most of the Southern European countries have very loose eligibility conditions and do not exclude certain sections of the labour force. Compared to other country clusters, Southern European countries have high levels of coverage per year of employment in terms of both minimum and maximum redundancy payments. The redundancy schemes significantly increase the protection of workers; however, workers with longer employment records receive more protection than younger workers, as the redundancy pay benefits augment uniformly with the increase in years of employment. In Continental-corporatist regimes, UI schemes provide higher levels of compensation than those in Liberal/minimal regimes and Southern European regimes. Yet, UI benefits do not cover the whole unemployed population (but their coverage rate is still higher than Southern European countries), as eligibility of UI schemes is based on previous employment experience and contributions. Similar to UI schemes, redundancy schemes have limited coverage due to various eligibility criteria such as minimum firm size, minimum tenure, exclusion of certain sectors and reasons of dismissal. Such qualifying conditions may disadvantage youth (due to their limited tenure in the firm) and workers in the informal economy, which often consists of small enterprises, as well as agricultural and domestic sectors. Furthermore, the amount of redundancy pay is higher than Liberal and Social Democratic countries. Given the coverage type and benefit levels, redundancy pay schemes could intensify the already existing ‘insider’ and ‘outsider’ dichotomy. In that regard, unlike Southern European countries, there is more of an unequal distribution of redundancy benefits because redundancy pay schemes tend to increase the benefits of certain sections of the labour force that may already be obtaining unemployment benefits, while at the same time they exclude some groups of unemployed people from receiving benefits. In Social Democratic countries, UI schemes provide comprehensive coverage to all citizens due to their loose eligibility criteria. Also, the duration of payments is high and often not dependent on employment and contribution records. Unlike UI schemes, redundancy pay schemes in Social Democratic countries provide low coverage, which often target older workers with longterm employment records. In addition, redundancy pay schemes often compensate the difference between UI benefits and the monthly salaries of unemployed people who have higher monthly wages. This characteristic also favours older workers because wages tend to be higher, as they have often worked for many years. This area of research would contribute to a better understanding and more comprehensive picture of unemployment compensation mechanisms in different regime clusters. Especially in the current context of rising unemployment and redundancy, it can shed light on important distributional outcomes © 2013 John Wiley & Sons Ltd

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of these schemes. Given that the amount of benefits of UI and redundancy pay schemes often increase with a longer employment record, relatively inexperienced and younger workers are the least protected group against unemployment in all regime clusters. Nevertheless, the distributional impact of these schemes on younger workers varies with respect to the eligibility criteria and maximum and minimum levels of benefits provided by the unemployment compensation schemes of different regime clusters. Future research, on the one hand, can focus on creating unemployment compensation indexes which not only involve UI/UA programmes (EspingAndersen 1990; Scruggs and Allan 2006) but also redundancy pay programmes (see Holzmann et al. 2011). On the other hand, qualitative studies can examine the politics over the reform processes of these unemployment compensation schemes of welfare state/occupational welfare regimes, as the reform of a programme can influence the politics over the other unemployment compensation scheme.

Notes 1. Belgium resembles Social Democratic countries in terms of the absence of statutory redundancy pay and high coverage of the labour force (96 per cent) by national collective agreement (Venn, 2009); however, national collective agreement only covers collective redundancies but not individual redundancies (EPLEX 2011). 2. Portugal, Spain, Greece, Germany, France and Austria have complementary unemployment UA programmes, which provide a maximum of 23 per cent, 21 per cent, 15 per cent, 10 per cent, 16 per cent and 36 per cent of the average monthly wage of the worker, respectively. The UK also has a UA scheme with low benefits (OECD 2010b). 3. The Confederation of Danish Employers (DA) covers 51 per cent of private employees and 32 per cent of the total labour force. The Confederation of Danish Industries (DI) is affiliated to the DA and ‘covers 62% of membership in DA, organising large companies and small and medium-sized enterprises (SMEs) within manufacturing, services, retail trade and transport’ (Jørgensen 2009).

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