In several Member States, direct income transfers have been temporarily reinforced. Income support for the newly unemployed includes support for children (Germany), mortgage payments (Spain, Hungary), guaranteed minimum income (Latvia), tax rebates as well as increases in the duration and level of unemployment benefits (UB).
Several Member States have modified the eligibility and generosity of their UB systems in response to the economic downturn. For instance, in Belgium the amount of the UB paid during the first year of unemployment has been increased, while in Bulgaria the UB was temporarily increased in 2009. In Austria, the assessment base for UB has been upgraded to take account of inflation. In Latvia, the period for calculation of the amount of UB has been extended since the beginning of 2010. In Slovakia, a temporary measure has been taken so that short periods of time spent on reduced working hours or on work suspension do not preclude eligibility for UB. The period covering parental leave is permanently included in the period of employment required for UB entitlement. In Latvia, Slovenia and Finland, the period of employment required to become eligible for UB has been reduced, although in Latvia, UB will be capped from the beginning of 2010 until the end of 2012(39). In France, the period of prior employment to determine eligibility for UB has been lowered from six months worked in the previous 22 months to four months worked in the previous 28 months (36 months for workers over 50). In Greece, the unemployment benefit increased gradually. In Poland, the monthly benefit level rose by nearly 30% although, after three months, the amount of the benefit will fall by around 21%. In Italy, the access to unemployment benefits is made conditional upon declaring immediate readiness to work or participate in a training offer. In the Netherlands, the initial level of unemployment benefits has been increased to 75% of the last daily wage during the first two months (with a maximum daily wage of EUR 185.46), and 70% thereafter. In Spain, a temporary measure was introduced whereby short periods of time spent on reduced working hours or suspension of work contract will not affect a person’s eligibility for unemployment benefits. In Sweden, in order to promote membership of unemployment insurance funds, and against the backdrop of the economic downturn, months of unemployment between 1 January and 31 December 2009 are counted twice.
In several Member States, the duration of eligibility for UB has also been modified. In Romania, the duration of eligibility was extended by three months in 2009. In Lithuania, it can be prolonged by two months in those municipalities where the registered unemployment rate is 1.5 percentage points higher than the national average. At the same time, the waiting period for entitlement has been extended to the number of months for which severance pay is paid. In Latvia the duration of UB entitlement has also been temporarily extended(40). In Portugal the duration for unemployment benefits for long-term unemployed has been temporary extended. In the Czech Republic, the duration for UB entitlement has been reduced permanently by one month, but the amount of UB paid during the first two months has been increased. In Poland, the duration of UB eligibility has also been reduced. In Ireland jobseeker’s benefit will be paid for up to 9 months (previously 12 months). This will apply to new claimants and those with an existing duration of less than 3 months on jobseeker’s benefit on 14 October, 2008. As discussed in previous subsections, the potentially adverse effects of these measures on labour supply have, in many cases, been balanced out by measures to ensure more active labour market search.
Raising UB during an economic downturn has several effects on employment. On the one hand, it supports aggregate demand thereby sustaining labour demand and hence also employment but, at the same time, higher UB will increase wage demands of unemployed people when negotiating for a wage and, as a consequence, employment may decline. Moreover, temporary increases may be perceived as being permanent and difficult to reverse once the economy recovers. Nevertheless, income transfers have the advantage of being quickly transmissible through the social safety net, although not all of those who are out of work are necessarily covered(41).
All in all, the overall discretionary fiscal stimulus to support household purchasing power constituted about 0.5 % of GDP in 2009, and is projected to amount to about 0.5 % of GDP in 2010, - compared to the 0.2% of GDP in 2009 and 0.3% of GDP in 2010 available for measures supporting the smooth functioning of the labour market(42).
(39) | I.e. the daily UB will be reduced to LVL 11.51 (EUR 16.38) plus 50% of the amount of the calculated unemployment benefit exceeding LVL 11.51 (EUR 16.38). |
(40) | From July 1st 2009 to December 31st 2011 to nine months for those who were previously eligible for unemployment benefit for four or six months (i.e. workers having worked one to nine years and 10 to 19 years respectively). |
(41) | See Box 3 in section 8.2 of Chapter 3 for more details on access to unemployment insurance and coverage of vulnerable groups. |
(42) | Including short-time working arrangements, training, placement, and other job-search help. |