22.11.2018

Temporary Layoffs

Temporary layoffs cause unemployment insurance costs of about 500 million per year, present WIFO labour market economists Rainer Eppel and Helmut Mahringer.

In times of lower capacity utilisation, some companies make use of temporary layoffs in order to save personnel costs. After a short period of unemployment, the same workers are re-employed. Since unemployment insurance covers the costs of wage replacement benefits, temporary layoffs cause additional costs of around 500 million euro per year.

Temporary layoffs, i.e. the termination and subsequent reestablishment, of employment relationships has been common practice in Austria for decades. If all re-employments within one year after a short period of unemployment are taken into account, 13.7 percent of all new jobs were re-employments with the previous employer ("recalls") in 2017. Almost one eighth of total registered unemployment (11.6 percent) was accounted for by "temporary layoff unemployment", i.e., registered unemployment during breaks in employment. Layoff unemployment thus accounted for around one percentage point of the unemployment rate (a total of 8.5 percent in 2017).

This personnel adjustment strategy is chosen particularly frequently in the construction industry, tourism and temporary employment. However, it is by no means only the seasonal sectors that are affected, but all sectors of the economy – including, for example, transport and warehousing, art, entertainment and recreation, real estate and housing, water, sewage and waste disposal. Not only seasonal, but also other short-term fluctuations in personnel requirements are thus balanced out.

Figure: Expenses for unemployment benefits and unemployment assistance during temporary layoffs

Source: WIFO-INDI-DV based on data from the Main Association of Austrian Social Security Institutions and the Public Employment Service Austria. Payments to unemployment benefits and unemployment assistance in case of registered unemployment (status "unemployed") during temporary layoffs. 2017: still under-recorded, as layoff unemployment of persons with reinstatement in 2018 is not yet taken into account.

The companies save personnel costs, and the company specific "human capital" is retained. Unemployment insurance costs directly amount to around 500 million euro per year, as many of the workers are registered as unemployed between the temporary end of employment and reinstatement and receive unemployment benefit or unemployment assistance. This does not include social security contributions payable by the Public Employment Service Austria (AMS) during unemployment.

If only reinstatements within two months are considered in order to focus on very short-term and non-seasonal suspensions (the typical seasonal breaks are longer), then the costs for unemployment insurance amount to about 110 million euro per year.

You can find an article in the Arbeit&Wirtschaft Blog here.