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Incentives for Hiring Disadvantaged Workers

Country of implementation
Hungary
General short description of the innovation
Employers hiring school leavers, people returning to work after child care, the long-term unemployed aged 50 years and over and young people in the framework of the paid internship programme are eligible for a reduction of social security contributions.
Target group
Total Population
Policy Field
  • general fiscal
Type of Policy
  • public
Duration of the policy
2005
Scope of innovation
  • Scope: temporary
  • Spatial coverage: national
General description of (intended) objectives and strategies
Act CXXIII of 2004 on the Promotion of the Employment of School Leavers, Unemployed Aged 50 Years and over, People Returning to Work after Child Care or Nursing and the Introduction of the Paid Internship Pro-gramme was adopted by Parliament on December 13, 2004 and entered into force on January 1, 2005. Through the new support scheme the Government aimed to promote the employment of school leavers and the unemployed young who had been facing increasing di?culties on the labour market. The subsidy aims at assisting school leavers to gain work experience. Other target groups are those returning to work following a longer period of inactivity due to child care or nursing. Finally, the scheme also gives incentives to take on the long-term unemployed aged 50 years and over. These people often face di?culties in ?nding a job even if their quali?cations are otherwise demanded on the local labour market and there is a shortage of labour. / The overall aim of the subsidy scheme is to support the labour market re-integration of these groups. The policy brief of the legislative proposal argues that ?it is justi?ed to introduce measures that create more favourable conditions to employers than the general rules on social security contributions. The opportunities of the disadvantaged groups to gain work experience should be further enhanced?. / Employers are eligible for the subsidy if they employ a person from any of the above target groups. The subsidy is paid for 9 months, after which the worker should remain in employment for at least an additional 3 months. Working time can be full-time as well as part-time, however part-time employment should not be less than 4 hours per day. The subsidy is 50% of the social security contributions payable by the employer, and is reimbursed retrospectively. In 2005 the wage eligible for the subsidy was capped at a monthly gross HUF 90,000 and accordingly the maximum amount of the subsidy was HUF 13,050 a month. / For each target group there are certain eligibility conditions. School leavers are eligible if they are under the age of 25 and have not held a job previously. People returning to work after child care or nursing are eligible if they are not in employment when the payment of their assistance ends. This excludes those who are laid o? shortly after they return to work, which is unfortunately a rather widespread phenomenon. Unemployed people aged 50 years and over are eligible if they are registered as long-term unemployed by the local job centre. / Support for hiring unemployed people aged 50 years and over had already been available before this measure: upon the application of the employer a full or partial wage subsidy and/or a contribution waiver could have been provided. The scheme was amended commencing from 2005 so that the reduction cannot be less than 50% of the employer?s social security contributions. In addition, the subsidy includes the ?xed-sum health insurance contribution which amounts to HUF 1,950/month and the 3% employers? contribution to the Labour Market Fund for unemployment insurance. / Recently a new legal concept has been introduced: the so-called paid internship employment status. This type of employment can only be established by a school-leaver with a higher education degree for a single period of 9?12 months. The intern cannot ?ll a position independently; nevertheless, the paid internship is a form of employment. At the end of the internship the employer provides the intern with a recommendation letter that certi?es work experience. Each intern is assigned a mentor who gives individual pro-fessional guidance, regular feedback and evaluation. The employer of the in-tern is also eligible for the reduction of contributions presented above, however the intern can be older than 25 and there is no requirement to maintain the employment relationship. / If for any reason the employment relationship is terminated before the end of the 9-months period, employers are not eligible for any reimbursement, regardless of which party is held responsible for the termination of employment. / In addition to the reduction of the employer?s social security contribution for the employment of paid interns, central administration bodies and their regional o?ces are eligible for a monthly maximum subsidy of HUF 45,000 for the period of 9 months, if the number of interns exceeds 1.5% of their to-tal authorised headcount. The interns are not civil servants, nevertheless this measure allows them to gain work experience and practice in public admin-istration. It is advantageous for the ministries as well because of the subsidies and the possibility to recruit and train talented young people. / / http://econ.core.hu/file/download/HLM2005/TheHungarianLabourMarket_2005_onefile.pdf, p201-203 /
Nature of the innovation-short-term perspective
Promote the employment of disadvantaged groups that are facing increasing di?culties on the labour market.
Nature of the innovation-long-term perspective
Boost employment by the labour market integration of those groups of working age that are not present on the labour market, like people in disadvantaged situation.
Type of ideal-typical strategy for the innovation
  • others (activation/ job creation)
Type of innovation
  • retrenchment or expansion of an existing/earlier policy
New outputs
  • subsidies/tax-credits (Two kinds of subsidies: social security contributions; 50% of the grant (salary) ?nanced)
Clarification of intended mechanisms, outputs and outcomes (optional)
Employers hiring school leavers, people returning to work after child care, the long-term unemployed aged 50 years and over and young people in the framework of the paid internship programme are eligible for a reduction of social security contributions.
Intended target group
Disadvantaged workers (young, people returning to work after child care, the long-term unemployed aged 50 years), employers
Working age population
  • care responsibilities (care for children [0-16/16+], for elderly or other family members) (parental leave or nursing)
  • employment situation (unemployed)
Employers-private institutional actors
Employers hiring school leavers, people returning to work after child care, the long-term unemployed aged 50 years and over and young people in the framework of the paid internship programme
Actors involved in policy-making/implementation and/or evaluation
  • agency or national social insurance body (Tax and Financial Control Administration, Labour Market Fund)
  • beneficiaries/users (Disadvantaged workers (young, people returning to work after child care, the long-term unemployed aged 50 years))
  • employers (organised or individual) (private firms or central administration bodies and their regional o?ces providing internship)
Clarification of the role of various actors
Employers are required to inform the tax authorities in advance in the event that they wish to request the reduction of the social security contribution. The sum is reimbursed by the Tax and Financial Control Administration in a single amount retrospectively, after the end of the 9 months of employment. The tax authority makes a declaration of expenses and submits a payment request to the Labour Market Fund.
Intended output
  • subsidies/tax-credits (Two kinds of subsidies: social security contributions; 50% of the grant (salary) ?nanced)
Did the innovation have any outcome related to job quantity?
decrease costs of employing a member of the target group
Clarification of outcomes in terms of impacting resilience and labour market inclusion
Through the new support scheme the Government aimed to promote the employment of school leavers and the unemployed young who had been facing increasing di?culties on the labour market. The subsidy aims at assisting school leavers to gain work experience. Other target groups are those returning to work following a longer period of inactivity due to child care or nurs-ing. Finally, the scheme also gives incentives to take on the long-term unemployed aged 50 years and over. These people often face di?culties in ?nding a job even if their quali?cations are otherwise demanded on the local labour market and there is a shortage of labour.
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