Institut fr Arbeits Sozial und Wirtschaftsrecht III Prof
Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer
Class 6: History of social rights in Eastern Europe - Part I - the pre-Soviet period v Something about the history of Europe in the 20 th century: ü Period before 1914 (World War I) § First social security systems like in Germany ü Period 1920 to 1945 ü Period 1945/49 to 1989 “Cold War” ü Period 1989 and following § Transformation of social security systems Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 2
Europe 1914 Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 3
Europe 1921 Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 4
Europe 1949 Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 5
Europe 2017 Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 6
History v First social security system in Germany in the 80 s of the 19 th century v A few years later in the Austrian part of the Austrian -Hungarian Empire Ø both systems were based on the insurance principle Ø In Germany pension insurance, health insurance, industrial accident insurance Ø In Austria industrial accident insurance and health insurance in the first place and early 20 th century also pension insurance Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 7
History v Generally in that period in other countries of Middle and Eastern Europe not such systems Ø In the Hungarian part of the Austrian-Hungarian empire Ø Generally also no real concern about social rights anyway ü Even in Germany – Bismarck was not a social reformer Ø Only Germany covered the blue-collar workers most others started with white collar workers Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 8
Soviet Union Class 7: History of social rights in Eastern Europe - Part II - the Soviet period v The Soviet Union: Ø In Russia under the Zar there was a system of social insurance Ø 1918 replaced by a system state financed Ø 1921 New Economic Policy – return to social insurance ü But with pensions not insurance in our sense but contributions paid by plant, kolkhoz etc. Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 9
Soviet Union Ø Pensions rather low and not everybody aware of it. ü Covering old age and invalidity Ø Improvements in 1956 ü Based on last income – but no indexation Ø System as such complicated with great number of special rules for special groups of people Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 10
Soviet Union v. Health care Ø System of public health care financed by the state ü No insurance v. System administered by trade union Ø Except in the first years no protection against unemployment Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 11
World War II v After World War II Ø East Germany, Poland, Czechoslovakia, Hungary, Romania, Bulgaria, Albania, Yugoslavia became socialist countries ü New systems but with elements of the traditional system from before if there have been any Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 12
After World War II v General philosophy: Ø Adequate protection to the entire population against the whole range of risks of the economic system Ø No unemployment protection because there is no risk of unemployment Ø Step towards a society in which people are rewarded according to their needs and contribute according to their abilities Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 13
GDR East Germany (German Democratic Republic) Ø Did not really stay with the Bismarckian system but kind of insurance principle ü One contribution for the entire system ü For workers adminstered by trade union ü For members of cooperatives and self-employed – administered by state insurance Ø Contribution since the 60 s no longer linked to development of income but always 600 marks per month (in the end -1988 – less than 50 % of average income) Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 14
GDR Ø In addition voluntary supplementary insurance Ø Contribution rate for workers 10 % of 600 marks. Employer 12. 5 % of gross income Ø Benefits: ü Covering all kinds of pensions, maternity, baby year, health care Ø Financed PAYG ü But with a more than 50 % subsidy by the state Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 15
Poland v First systems after independence from Russia Ø Pension insurance for white collar workers in 1927 ü After 40 years of insurance 100 % of average income Ø and for blue-collar workers in 1933 Ø Kind of invalidity pension incl. Minimum benefit of about 30 % of average wage Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 16
Poland v After World War II Ø Basic principles remained in place Ø Extended to additional social groups like artists, craftsmen, individual farmers, clergymen Ø Principle of equal treatment Ø Extended in benefits – introduction of family benefits Ø Admninistration by the state Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 17
Hungary v. First steps end of 19 th centure covering illness v. Early 20 th century industrial accident v 1928 old age Ø Generally Bismarckian approach Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 18
Hungary v. After World War II Ø Social security remained as social insurance but extension of coverage Ø Administered by trade unions Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 19
Czechoslovakia v As part of the Austrian-Hungarian Empire same development as Hungary v After World War II similar but as a uniform state security system Ø In the beginning relatively high replacement rate (85 % to 90 %) Ø In the end around 50 % Ø Administration by trade unions Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 20
Conclusion v. Different economic system from now v. Employer (Factories) were in charge of social services of their workers v. Social security financed by employers but in a way following the insurance principle v. Read and discuss paper Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 21
Conclusion Pension systems in socialist CEE had reached virtually universal coverage in the 1960 s and 1970 s, and were marked by a number of other characteristics: they were organized as one-pillar public systems not separated from the state budget or other branches of social security, allowing for different forms of cross-subsidizing; employers’ contributions were the only source of financing; the contribution-benefit link was weak; contributions were not registered on an individual basis; and wages from only a small number of working years were considered as relevant earnings. In general terms, both pension differentiation and average benefit levels were low. The retirement age was also comparatively low, typically 60 years for men and 55 for women. Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 22
Post-Soviet Class 8: History of social rights in Eastern Europe Part III - the post-Soviet period v What happened in 1989 -1990? Ø Soviet Union fell apart Ø Germany reunited Ø Yugoslavia fell apart Ø Czechoslovakia fell apart Ø A great number of new countries: ü Estonia, Latvia, Lithiuania, Slovak Republic, Czech Republic, Slovenia, Serbia, Croatia, Bosnia. Herzegovina, Macedonia and recently Montenegro and Kosovo Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 23
Post-Soviet v Problems faced with: Ø Existing countries: ü Make system workable under new economic system ü Employer no longer can provide social services ü Soundly financing of social insurance ü Expectation of people and traditions ü Role of consulting projects ü Role of international organizations Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 24
Post-Soviet v Newly independent countries: Ø Finding their own identity Ø Struggling economically for independence Ø Practical experiences at the beginning of the process: ü Technological aspects ü Political aspects ü Role of consulting projects ü Role of international organizations ü Role of emigrants – especially in the Baltics Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 25
Post-Soviet v. Special situation Germany: Ø Reunification of a Western country and a socialist country Ø Issues: ü Two different systems? ü One unified system? Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 26
Post-Soviet v Experience with all these countries: Ø Change of government after each election in most CEE countries Ø Economic challenges: ü Downsizing and closing of companies ü Increasing unemployment § Early retirement as an answer ü Problem of financing systems Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 27
Post- Soviet v. In the first place: Ø Existing countries ü Keeping the traditional system ü Has to meet the challenges of the other economic system Ø Overall problem: ü Low contribution compliance ü Informal labour Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 28
Post-Soviet v. Newly independent countries: Ø Finding their own way – sometimes other than the former one – Baltics Ø Economically similar problems Ø Issues in all countries also in health care – switch from tax-financed system to contributory system Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 29
Üpost-Soviet v Role of World Bank v Role of European Union v Role of ILO Ø International lending agencies (e. g. World Bank, IMF) have the power to impose conditionality on client countries ü Means: § strong influence by World Bank § influence by EU because of funds for development for CEE countries § ILO less powerful in this context Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 30
Post-Soviet v In the 90 s pension crisis in most of the countries Ø Difficulties to finance the system Ø Considering supplementary private pensions or alternative ways of financing Ø Role of World Bank: ü Countries with high state budget deficits were dependent on loans ü By the World Bank ü Chance of the World Bank to press for its model: Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 31
Post-Soviet Ø Proposal basically consists of a three-pillar model of old-age security: a mandatory public pillar with the limited aim of poverty alleviation among the elderly; a mandatory private fully funded pillar linking benefits to costs actuarially; and a voluntary savings pillar. Within this framework, the lion’s share of old-age security falls to private pension funds. Ø Book: Averting the Old age Crisis – Policies to Protect the Old And Promote Growth Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 32
Post-Soviet v. Conflict between radical change to the World Bank model and staying with PAYG Ø A number of countries introduced World Bank model by downsizing public scheme and increasing private funded schemes Ø Problems with this approach: Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 33
Post-Soviet v Internal evaluation by World Bank The World Bank’s model of partially privatized pensions, known as ‘multi-pillar systems’, has resulted in lower benefits for retirees, in part because of extremely high administration costs for the private accounts that the Bank encouraged, and in stagnant or even declining levels of pension coverage, despite the Bank’s claim that coverage would increase with the reforms. In addition, the fiscal cost of diverting contributions away from public pensions into the mandatory private funds favoured by the Bank frequently leads to pressure to reduce spending on other public services. Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 34
Post-Soviet v. Role of the EU consulting Ø Own experiences Ø Tried to keep with the traditional systems and reform them Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 35
Post-Soviet Special case Germany v Basic decision: Ø One country again Ø One system – which one? ü Financial and economic strength of West Germany – setting the rules ü Means: § One unified system for entire Germany with a large number of issues in detail Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 36
Post-Soviet How to finance, organize etc. the West German way Abolishing certain privileges for East German officials ü Still certain differences between East and West in pensions – to be abolished by 2024 ü § ü Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 37
Social Security Class 9: Economy and social security: impact of capitalist restoration in social rights v Results from these developments: Ø Social security as a factor of labor cost and a matter of competitiveness Ø Private Pensions as a means to ü Honor additionally certain groups of workers or to ü Provide a general second tier (Eggs and baskets) ü Accumulate capital for investment Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 38
Labour Protection Class 10: The experience of reconstruction of social rights in Eastern Europe - Part I - the labor protection system v Most of these countries are now member of EU Ø Which means similar standard in labor protection due to harmonization on EU level ü Dismissal protection may in part still be different ü But rules with same legal result in M&A ü Same with vacation Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 39
ü • • • Rules with same legal results on Insolvency protection Temporary employment Part-time employment Safety at Working Hours Equal treatment Baby Year Information of workers European Works Council Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 40
Labour Proetction v. In the first years – the 90 s – dilemma between using lower labor costs and lower labor standards to be more „competetive“ and v. Being a EU candidate country and required to meet EU standards v. The early 90 s have been chaotic in these countries or at least a number of those Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 41
Cost of Social Security Class 11: The experience of reconstruction of social rights in Eastern Europe - Part II - the cost of social security v Still high standard of social protection v Still universal coverage Ø at least by the public system v Still most contributions paid by employer Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 42
Social Security Benefits Class 12: The experience of reconstruction of social rights in Eastern Europe - Part III - the system of social security benefits v CEE countries tried to continue with the systems they had before due to traditions v The state systems were diversified into a three pillar system v The PAYG state systems had trouble due to the low birth rate Ø The state budget therefore runs into a deficit because contributions cannot cover all Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 43
Social Security Benefits „Solution“ in Poland v In 2013 Half of Private Pension Funds „confiscated“ to „cut“ sovereign debt load Ø so transfer of funds to the public system eased that deficit ü Kind of crude argument but some logic when taking into account that it affects a mandatory private system Ø By this move – go back to the old public system rather than three-tier – retreat from the World Bank model system Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 44
Social Security Benefits „Solution“ in Hungary v Like in Poland v Private pension fund assets second tier seized by government – without compensation Ø Kind of mandatory system Ø Argument: ü lack of inflows has resulted in the pension funds being unable to generate sufficient retirement income for their members – better off if all contributions to the first pillar Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 45
Social Security Benefits Ø Poland Hungary a little bit different situation but in the end finalizing the World Bank system Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 46
Social Security Benefits Baltics Latvia: Three pillar system Ø First pillar originally flat-rate with benefits only depending on length of service ü In 1995 replaced by an earnings-related system Ø Plus mandatory 2 nd – private – tier and Ø 3 rd private – voluntary ü The last one covers only 25 % of people Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 47
Social Security Benefits Lithuania Ø A strong earnings-related system in the first place after 1990 ü In 1995 two-tier system with a flat-rate public system and an additional nonmandatory 2 nd tier (earnings-related) Ø High contribution rate – 23. 7 % for pensions. Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 48
Social Security Benefits Estonia v Economically most successful Baltic country v Demography less dramatic Ø First pillar in the end defined benefit with two parts - a flat-rate pension (minimum) and an earnings-related scheme Ø In addition 2 nd pillar mandatory private DC (individual accounts) Ø Third pillar voluntary savings Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 49
Social Protection Class 13: The experience of reconstruction of social rights in Eastern Europe - Part IV other forms of social protection v Some countries like the Baltics returned to their old constitutions with labour rights etc. v Other countries have set similar rules v Most of them are now measured by EU standards Institut für Arbeits-, Sozial- und Wirtschaftsrecht III Prof. Dr. Heinz-Dietrich Steinmeyer Folie 50
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