Employment law changes, but outlook remains doubtful

The road to recovery is proving much bumpier than market watchers forecast a year ago and it is now clear that expressions such as hiring freeze, caution and stagnation will remain in use in the labour market's vocabulary for 2012. Many businesses are now wiser following their experiences tackling the 2009 downturn but the prospect of a return to recession means firms remain cautious in their plans and ambitions. At the very least, long-term plans and take-it-for-granted predictions are definitely out of fashion for 2012, and companies will first of all try to play it safe, observers say.

Former prime minister Iveta Radičová Former prime minister Iveta Radičová (Source: Sme - Tomáš Benedikovič)

The road to recovery is proving much bumpier than market watchers forecast a year ago and it is now clear that expressions such as hiring freeze, caution and stagnation will remain in use in the labour market's vocabulary for 2012. Many businesses are now wiser following their experiences tackling the 2009 downturn but the prospect of a return to recession means firms remain cautious in their plans and ambitions. At the very least, long-term plans and take-it-for-granted predictions are definitely out of fashion for 2012, and companies will first of all try to play it safe, observers say.

In terms of official statistics, the Finance Ministry’s Financial Policy Institute, in its flash estimate released on February 6, scaled down its earlier prediction for Slovakia's economic growth in 2012 from 1.7 percent to 1.1 percent of gross domestic product (GDP). Despite its gloomier outlook, the institute still does not foresee recession as the most likely scenario for this year, but admits that “significant uncertainty in the external environment prevails”.

In November 2011, the Financial Policy Institute said that 2012 would not generate many new private sector jobs and that additional layoffs were expected in the public sector, as well as from the state-run railway companies, as part of the government's drive to cut the state budget deficit. In its revised prognosis the institute does not offer a radically different view of the labour market, suggesting that employment will stagnate, along with household consumption. The effect of lower inflation, predicted to be 2.8 percent this year, will contribute to a moderate increase in real wages, the institute said, as quoted by the SITA newswire.

Nevertheless, the question of employment, or rather the current lack of it, has made it into the political arena, with political parties constantly referring to jobs and the jobless. Many of the parties have made reducing unemployment one of their key campaign pledges ahead of the March 10 general election, which was prompted by the fall last October (2011) of Iveta Radičová's centre-right coalition government. The election will be one of the most significant political events of 2012.

Jobless data, however, show that there is good reason to pay attention to the employment situation irrespective of the election campaign: Slovakia’s unemployment rate hit a seven-year high of 13.59 percent in December, its highest level since July 2004.

Slovakia is far from the only country with reason to seek remedies for its crisis of joblessness: average unemployment across the eurozone has now climbed to its highest level since the launch of the single currency in 1999, hitting 10.4 percent in December.

Among respondents in a recent opinion poll, 44.3 percent said that better conditions for employers, including less bureaucracy, lower taxes and payroll levies, and a more flexible Labour Code, would be the best way to fight Slovakia’s high unemployment rate. Only 27.6 percent of the survey's respondents supported the idea of creating new jobs through state investment in large-scale public projects such as power stations or highways. Even a majority of respondents who said they support the opposition Smer party preferred a better business environment to large-scale public investment, by a ratio of 40.2 percent to 37.3 percent, according to the survey, which was conducted by the MVK polling agency among 1,145 respondents between January 5 and January 11, SITA reported.

The next government should put macroeconomic stability, a consistent fight against corruption, improved enforceability of the law, better efficiency in the social security system and a high quality education system at the top of its agenda, according to the Business Alliance of Slovakia (PAS), an umbrella group for businesses operating in Slovakia.

PAS executive director Róbert Kičina said he believes that Slovakia urgently needs new reforms, adding that businesses are increasingly dissatisfied with the fact that over the past six years no reform that would considerably improve the business environment has been completed, SITA reported.
PAS also called for payroll taxes to be reduced, for the operation of public institutions to be improved and for increased transparency in public spending.

Despite such calls, there is no guarantee in the run-up to the election that the government which emerges after March 10 will resurrect any of the reform plans set out by the Radičová government. These include a reform of the payroll levy system, changes to the financing of local governments, and continued reform of the judicial system.

Moreover, observers worry that the changes made by the outgoing government to the country’s Labour Code, which are generally agreed to have introduced more flexibility into the labour market, might be reversed by the next government.

The key code

The country’s revised Labour Code took effect on September 1, 2011, with the stated ambition of the Labour Ministry being to bring more flexibility into the market while creating better conditions for job creation. Tightening economic figures and the prospect of yet another revision after the election have led observers to be somewhat careful in their assessments of the effects that the recent changes to the code have had, though they agree that its revision was still one of the more important legislative changes pursued by the government in 2011.

The September changes included: cancellation of employees’ parallel entitlement to a layoff notice period as well as severance pay; a longer time period for fixed-term employment contracts, which can now be renewed annually for up to three years; a longer layoff notice period for employees with long service in the same job; and greater protection for new mothers and pregnant women.

The amendment also restricts the negotiating rights of a trade union with few members in a particular workplace and establishes a 3-percent limit for the profit margin of companies that sell meal vouchers to employers for their employees’ use. Additionally, the new Labour Code removed an earlier restriction on certain overtime hours, made it easier for employees to draw compensatory leave, set lower premium payments for overtime work and permitted employers to more easily schedule night shifts.

Even though they did not see all their code-related wishes fulfilled, employers welcomed the changes, most loudly applauding the scrapping of the simultaneous obligation to pay severance and provide notice, as well as the option to sign longer fixed-term employment contracts. What they expect most from the Labour Code is that it will lower the cost of employing people and give them greater flexibility when it comes to creating and terminating jobs.

The trade unions opposed any changes to the Labour Code right from the initial publication of the government's proposed revisions. They argue that the new code has significantly reduced employment security for employees, who they believe are now in a weaker position.

The young jobless

The jobless figures in December 2011 indicated that nearly 400,000 Slovaks were without work, and showed that the unemployment rate grew in all of the country’s eight regions. Nitra Region, where the rate hit 13.27 percent, recorded the largest increase, while unemployment in Bratislava Region stood at 5.41 percent.

Slovakia posted the third highest unemployment rate among all member countries of the Organisation for Economic Cooperation and Development (OECD), a club of industrialised economies, with only Spain (22.9 percent) and Ireland (14.6 percent) reporting gloomier numbers in November 2011, SITA reported.

Labour market watchers do not expect any dramatic turnaround any time soon.

“Fears of the return of recession have further strengthened the caution of employers when hiring people as their core staff, since between 2008 and 2009 they saw how orders could in fact drop from one day to another,” Luboš Sirota, CEO of Trenkwalder, told The Slovak Spectator. “Now they worry that this situation might return and they have stopped hiring new people completely.”

Long-term unemployment remains a worrying factor in Slovakia, with one in three unemployed Slovaks looking for a job for more than two years, according to data from the Labour, Social Affairs and the Family Centre (ÚPSVaR). Another group causing concern is the growing number of jobless young people.

Michal Páleník, the director of the Employment Institute think tank, told The Slovak Spectator in late 2011 that the growing number of unemployed graduates is a very serious problem in Slovakia.
“The government finances [students’] education but does not pursue a balance between the kinds of education provided and the needs of the labour market,” Páleník said. “It is as though the government relies on the market to arrange this.”

However, the labour market does perform this function, Páleník continued, adding that the natural process could take several generations and that he believes the Slovak government could speed things up by adjusting its funding and policies to support the training of experts in academic fields that the market lacks, rather than churning out graduates who cannot find employment.

Martin Krekáč, senior partner at Amrop Slovakia and chairman of Jenewein Group, agrees that it is a longstanding problem that the education system, besides being of dubious quality, produces graduates in fields that are not in line with what the market expects or can accommodate.

“The state should finally stop pretending that it can solve the problem and should step out of the way and let private business and co-financing models drive change in this field,” Krekáč told The Slovak Spectator.

The rise in unemployment rates among young people across the European Union prompted the president of the European Commission, José Manuel Barroso, to write on January 31 to the leaders of eight member states including Slovakia whose youth unemployment levels are significantly above the EU average, urging them to work on targeted youth employment plans.

One of the challenges in this area is to make the labour market more accessible to young people and to direct use of European funds more to this area.

Predictions for the HR sector

As for the impact of the economic slowdown and the effects that this will have on firms and hence the structure of services provided by human resources businesses, Luboš Sirota CEO at Trenkwalder predicts agency employment will grow while demand for employment recruiting of employees to core staff will fall.

Human resources services providers have already adjusted to the changed situation, according to Igor Šulík, managing partner at Amrop Slovakia. Mariana Turanová of Target expects that the executive search business will continue at its current level as replacements for top positions will not stop, though she adds that there will be less new business in the HR sector overall.

Bruna Beata Jakub, country manager with Adecco, foresees an increase in flexible workforce alternatives in Slovakia and an increase in outsourced services, while Eva Sklenárová, CEO of Person, expects to see higher demand for analysis of human resources, audits and effective use of the workforce.

Business leaders in Slovakia consider the most important trend to be optimisation of processes, along with efforts to cut costs and increase customer satisfaction, according to a survey conducted by consultancy firm Dr. Pendl & Dr. Piswanger among 396 top managers from countries in central and eastern Europe. The managers surveyed also commented on their preferred corporate and HR strategies.
Unlike their Slovak colleagues, top managers from other countries in the survey also considered gaining new markets and expansion to be an important factor.

For more information about the Slovak labour market, HR sector and career issues in Slovakia please see our Career & Employment Guide.

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