With Kurzarbeit for Large Debts in Slovakia

The contest for who is more generous is on. Slovak large-scale employers want the highest possible wage compensation, looking up to the German or Austrian Kurzarbeit system, which covers up to 85% of wage costs. Journalists and some economists argue that we should borrow as much as we can. They claim that it is to save the economy, especially in terms of employment.

With Kurzarbeit for Large Debts in Slovakia

Somehow, the most important thing is being forgotten – value for money. Neither the state of emergency, nor the running ECB printers entitle us to forget to count.

Let us leave aside the question of whether maintaining employment is a genuinely legitimate goal. Let us assume that the Slovak economy was set up ideally before the COVID-19-induced crisis.

In this case, the actual employment contract is of value – it is an insurance for immediate start of production, an early wage insurance for the employee. But even in this case we cannot pretend that resources are not scarce.

Here is the key question of value for money – what is the lowest price at which we can maintain employment?

The economic analysis is clear: one euro more than the unemployment benefit, which the Slovak government just extended from six months to “indefinitely”.

The benefit is determined as 50% of the daily assessment base. Therfore, the lowest amount is half the gross wage + EUR 1 for every person who cannot work.

The government should muster the courage and inform employees about the real status quo. The courage to admit that in the current situation we cannot pretend that we can buy a functioning economy by borrowing money.

We are facing a state of emergency, which requires a temporary solidarity-base benefit to cover the basic needs of an inactive person, just as the unemployment benefit does in typical circumstances.

For this reason, we should not talk about wage compensation. Who does not have a job can expect neither 80%, nor 60% of their salary.

Currently, the unemployed are provided with a 50% compensation of their previous income, but only up to a ceiling of EUR 1,000. This is also relatively high, as the Social Insurance Agency already has to borrow these resources – and we will have to repay them in the future.

For small companies, the government has provided compensation per employee of max. EUR 540. It is clear that the companies with higher capital background do not need help from day one, but eventually they will run out of resources too.

I find it hard to come up with an argument why employees in large companies should receive higher compensation. Of course, the state cannot require the employer to pay levies if the employers do not generate sales.

Using Germany as a go-to solution is an oversimplification. However, a few people do claim that in recent years, the German government managed to accummulate a surplus of 200 billion euro (an amount equal to two-year Slovak GDP). Or that, for a long time, both employers and employees have been contributing to the Kurzarbeit system.

German model is not correct a priori and thus is not easily applicable to all European countries. A fair cost-benefit analysis should be the primary criterion for all other countries with which Slovakia shares a common currency.

Tens of percent of GDP as state aid is easily promised, but even Germany does not have it in its wallet yet. We cannot compete for who is the most generous, but we shall meet the standard of responsibility and solidarity.

We must also be interested in what happens in a year or five years from now, so that recovery does not hurt us more than the disease itself.

Translated by Eva Schwarzová

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