June 05th 2015

The Future of a Welfare State.

Rudolf Hundstorfer, Austrian Minister of Labor, Social Affairs and Consumer Protection

Minister Hundstorfer began his talk at MCI Alumni & Friends with a historical overview. He said the welfare state was still relatively young and the outcome of a long journey and could be seen as a net in support of the economy. For the future, he sees some major challenges, including longer life expectancy with resulting problems with financing pensions. He also considers it necessary to encourage people to seek to leave minimum benefit status behind them.

According to the Minister, we are confronted with increasing social and economic change, as illustrated by digitalization, the smartphone culture and online shopping. He said that was creating challenges with regard to data protection and a changing working world.

For Rudolf Hundstorfer, the basic principles of the welfare state include protection against risks, solidarity and equal opportunities, and it is his job to provide the necessary finance. But that, he said, was again dependent on the factor labor, which is the foundation of the welfare state, with everything based on the principle of insurance.

The Minister then spoke about today’s process of structure change with regard to hours worked. Of some 3.5 million wage or salary earners, more than one million work part-time, he said. Fifty percent of them have no alternative to such employment, on the one hand because trade and industry are not offering enough full-time jobs and on the other hand because kindergarten opening hours are inadequate or family duties, such as care of the elderly, also have to be accommodated. One result of this development is a downturn in the wage share of national income, which is set to continue.

Today’s changes in the working world are leading to more flexible working hours and non-standard forms of employment. Austria is the Vice European Champion in overtime working. Last year’s total was 270 million hours of overtime, which translates into an average working week of 42.5 hours. That shows the enormous potential in the country for additional jobs. The Minister accordingly called for some of the overtime to be converted into regular jobs. Just 10% of the total would be the equivalent of 8,400 full-time jobs.

These developments are germane to the question of how to finance the welfare state. Hundstorfer pointed out that the welfare state was based on a regime of full-time employment and that full-time jobs were fundamental to the system of national health insurance. The continual increase in the share of part-time workers, he said, was stretching the principle of solidarity-based financing to its limits, and alternative forms of funding therefore had to be discussed.

Demographic change resulting from the sinking birth rate means that there are now fewer young people in employment. As a result, the national bill for pensions can only be financed if people work longer. For the Minister, this means that the labor market offensive must be intensified, especially for the over-fifties, and also that the subject of life-long learning is becoming increasingly important.

The speaker went on to point out that 50 percent of the unemployed have no qualifications. The biggest change in Austria, starting in autumn 2016, will accordingly be compulsory education or training up to the age of eighteen. All young people will be required to undergo further education or training after reaching the current age for the end of compulsory education. At present, about 5,000 young people leave school at the end of the period of compulsory education without enrolling for some form of further education or an apprenticeship, and that will no longer be possible when the new regulation comes into force.

Finally, Minister Hundstorfer said that the welfare state was in good shape in Austria, but if that was to continue to be the case, the country needed a high rate of employment, a higher retirement age and the continued political will to finance the welfare state. He conceded that there would also have to be changes with regard to funding but said that privatization had never been good for the social fabric of society. He concluded with the declaration that he was happy to be living in a country where he had to consider “how the increases in life expectancy can be financed from year to year”.

Oliver Stock, Editor in Chief of Handelsblatt Online, chaired the event, which closed with a lively discussion.