Crisis Response Monitoring Country Report

Last updated: July 6, 2020, 15:45

Although Slovakia´s quick response to COVID-19 pandemic led to very few cases and only 28 deaths, the overall economic impact has been much severe when Slovak GDP shrank by 3.9% y-o-y in 1Q 2020, which was one of the largest drops in Europe. Unemployment has grown by now by 2 pp since the beginning of the year and is expected to grow. If the second wave hit the country, the existing strategies of containing the pandemic may not be sufficient to prevent future lockdowns.

Authors

Martin Kahanec Central European University, CELSI, IZA

Monika Martišková CELSI

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  • Slovakia, a country of 5.4 million inhabitants, recorded its first COVID-19 case on March 6, 2020, and its first death attributed to the pandemic on April 1, 2020. As of June 25, 2020, Slovakia had recorded 1,630 cases, 28 deaths, and had 150 active cases. In terms of the number of COVID-19 deaths Slovakia occupies the last place among European states
  • This remarkable performance in terms of containing the pandemic has been due to several key factors:
    • Quick response – within less than a week since the first case schools and universities in Bratislava had been closed, border controls and mandatory quarantine for people returning from abroad had been introduced and non-essential shops had been closed; within ten days schools had been closed in the whole country, mandatory face masks had been introduced, and international bus, train, and air passenger services had been banned.
    • The high level of compliance of the general public, supported by the example of politicians, news anchors, and media personalities, all wearing facemasks on the screen.
    • Even though several mistakes have been made, the overall effectiveness of the measures taken was good.
  • The overall economic impact of the COVID-19 pandemic in Slovakia has been severe. Primarily due to meager foreign demand, in Q1 2020 Slovak GDP shrank by 3.9% y-o-y, which was one of the largest drops in Europe. Slovakia was still able to borrow record-high 4 billion EUR for 5 and 12 years at very solid rates (reoffer yield 0.35% for 5-yr bonds, 1.056% for 12-yr bonds); Fitch downgraded Slovakia from A+ to A on May 8, 2020, nevertheless.
  • Following a slight increase of the unemployment rate from 6.13% in February to 6.21% in March 2020, April 2020 marked a record-high monthly increase of the unemployment rate by 1.22 pp to 6,57% followed by further increase by 0.63 pp to 7.2% in May as reported by the Central Office of Labor, Social Affairs and Family (COLSAF) The unemployment rate however remains relatively low, compared to Slovakia’s historical data, when the unemployment rate reached about 15% just seven years ago.

  • Remarkably and surprisingly, whereas employers announced 2242 mass layoffs in March 2020 and the number increased to 3142 in April, May witnessed just 1116 mass layoff announcements. Another positive signal from the labor market was that in May 9,665 people found jobs, which was by 3,744 (63%) people more than in April.
  • While there were 180,756 unemployed in April and 198,256 in May 2020, COLSAF also registered 67 thousand vacancies in May, 5 thousand less than in April. Workers were sought especially for the positions of machine operators and specialized crafts people, and unqualified workers.
  • Temporary agency workers and workers on fixed term contracts belong to some of the most affected groups in the labor market. Temporary agency workers are covered by the Labour Code provisions similar to regular employees and their employer (the agency) is obliged to offer at least 60% of the wage compensation if the employer cannot provide work to the temporary agency worker. The reference wage is equal to the average wage registered at the agency for the last 12 months. Data about actual layoffs of temporary agency workers is not available, but we expect that they are exposed to lay-offs more often than regular employees.
  • Another vulnerable group, which is poorly protected against job loss are workers working on work agreements outside of the regular employment contract. There are two types of such agreements: (1) work agreements equivalent of part-time employment contracts and (2) work agreements for the maximum of 300 hours per year. Even if in the majority of cases employees with such work agreements are part of the social insurance system, employers are not obliged to compensate for their wages if they do not have the work for them. To compensate these workers, in mid-April the government announced that those who have a valid work agreement but cannot perform their work are entitled to a monthly subsidy of 210 EUR provided by the state as a compensation for the wage loss.
  1. https://www.worldometers.info/coronavirus/
  2. https://www.upsvr.gov.sk/media/medialne-spravy/celkovy-pocet-uchadzacov-o-zamestnanie-v-aprili-medzimesacne-vzrastol-o-33-613.html?page_id=1003574
  3. KOZ statement before the tripartite meeting on May 18th, 2020: https://hsr.rokovania.sk/2020-/
  4. https://www.ip.gov.sk/koronavirus-praca-agenturnych-zamestnancov-pocas-mimoriadnej-situacie/
  5. Slovak Labour Code distinguish between fixed term contract which is regular employment contract but set on specific time period and work agreement contract, which is designated for smaller jobs (up to 20 hours per week, maximum 1 year, or for maximum 300 hours per year). While the first type establish similar employment protection as the regular open-ended employment contract (e.g. severance payment if work contract ends before the set date) in the case of work agreement, employment protection is lower, with no severance payment and only a 15-day dismissal period.

  • The OECD inventory provides a relevant summary. The only important update is introduction of Kurzarbeit for companies since April 17th, which we assume will be updated in the database in due time.
  • The overall policy set can be considered as adequate.
  • The actual data about state compensation programs between mid-March and June 2020 published by the analytical unit of the Ministry of Labour show that as of June 10th, 496 thousand workers were supported by the government programs targeted on employers and self-employed. The majority of support requests were approved (87% of the amount as of May 2020 and 99% in June 2020 requested was approved and distributed). The average amount per employee has doubled between March and April. This increase was expected, as the compensations for April covered the whole month while March compensations reflected the period after the declaration of the emergency state in March 12th. In March the support varied between 251 EUR per self-employed to 284 EUR per employee in establishments closed or regulated because of the anti-pandemic governmental measures. In April 2020 the amounts increased to 474 and 493 EUR, respectively.
  • Of the total state compensation programs targeting the labor market, the largest support went to the industrial sector (39% in March and 46% in April, 2020) and to the wholesale and retail services (20% in April). The largest amount of the support per employee was in accommodation services (260 EUR in March and 546 EUR in April, per employee). As the support for March was paid only in May, the HORECA sector service providers were complaining that the support was late and insufficient. Indeed, in March 2020 42% of all newly registered unemployed were from this sector. Nevertheless, the share of the HORECA sector in unemployment decreased to 13% in May 2020. We note, however, that in spite of the partial re-opening of restaurants in May 2020, 14% of them were not expecting to re-open at all because of bankruptcy.
  • At the beginning of the pandemic, the representatives of employers complained about late and inefficient help from the government to enterprises and were afraid of significant job losses if more robust help was not provided. They mostly criticized complicated administration of the measures adopted to alleviate the economic impact of the pandemic as well as insufficient support to big employers. A comparative study of the Centre for Public Policy, Bratislava, and Inline Policy, London, also concluded that the initial support of the Slovak government was not sufficient; a program of guaranteed loans for entrepreneurs was seen as the one missed the most.
  • The more recent figures on the demanded and actual take-up signal that situation has improved by May 2020, and employers could reach the support demanded.
  • Although the May unemployment figures suggest some stabilization in the labour market, this might be temporary only, as the numbers of cases have started to increase in the second half of June in Slovakia and several other countries. The existing strategies of containing the pandemic may not be sufficient to prevent future lockdowns.
  • Some of the groups that may be less well covered include municipalities (who will lose on income taxes) and socially excluded and marginalized groups (who may be falling through the safety nets and the measures implemented). Some loan programs for municipalities have been announced in late June; however, it remains to be seen whether municipalities will be willing and able to use these programs in a larger scale.
  • No impact studies about the effectiveness and efficiency of the adopted measures are available as of June 2020.
  1. https://www.employment.gov.sk/files/slovensky/ministerstvo/analyticke-centrum/analyticke-komentare/isp_2020_prva_pomoc_slovensku_final5.pdf
  2. https://www.employment.gov.sk/files/slovensky/ministerstvo/analyticke-centrum/analyticke-komentare/isp_2020_prva_pomoc_slovensku_20200615.pdf
  3. https://www.employment.gov.sk/files/slovensky/ministerstvo/analyticke-centrum/analyticke-komentare/isp_2020_prva_pomoc_slovensku_20200615.pdf (Table 7)
  4. https://slovensko.hnonline.sk/2143320-stovky-restauracii-krizu-neprezili-namiesto-restartu-krach
  5. AZZZ statement before the tripartite meeting on May 18th, 2020: https://hsr.rokovania.sk/2020-/
  6. https://www.cvp.sk/content/suhrnna-sprava-covid.pdf

  • Although initially large employers complained about the ceiling that capped the maximum amount that an employer could receive through the anti-COVID-19 schemes, the ceiling was lifted relatively soon and there seem to be no major impediments in the schemes implemented.
  • Although the problem of moral hazard and possible abuse of the schemes is relatively often discussed, the general approach is that help must come quickly. This may be justifiable also on the grounds of the argument that because the shock is exogenous and unexpected, the scope for moral hazard is somewhat limited. It is however too early to evaluate the deadweight losses relative to the respective counterfactuals.
  • Self-employed are entitled to the support based on the decrease in their revenues (for the decrease from 20% to 39% the support is 180 EUR, for 40% to 59% decrease the support is 300 EUR, for 60% to 79% decrease the support is 420 EUR, and for a decrease of more than 80% the support is 540 EUR). As of June 2020, 40 thousand self-employed have been compensated with the average amount of 250 EUR in March and 474 EUR in April, 2020 (the compensations were paid in April and May respectively). Remarkably, as of May 2020 the year-on-year rate of closed licenses for self-employment did not increase compared to 2019.
  1. https://www.employment.gov.sk/files/slovensky/ministerstvo/analyticke-centrum/analyticke-komentare/isp_2020_prva_pomoc_slovensku_20200615.pdf (Graph 5)

  • Except allowing for post or email registration with the Labour Offices, the unemployment insurance scheme remained unchanged. As of April 21st the extension of unemployment benefit by one month was granted to those whose entitlement were running out during the crisis. Trade unions demanded the general duration of the UB be extended beyond this one-off technical extension, however, as of June 28 30 they have not made a specific proposal.
  • No new specific support to unemployed nor new ALMPs have been announced as of June 28.
  • Kurzarbeit was introduced in Slovakia as a temporary measure, but there is discussion about the possibility to implement it as a systematic measure also for the future. There is a proposal to increase social insurance contributions by 1 percentage point (0.5 pp paid by employers and 0.5 pp paid by employees) to finance such permanent Kurzarbeit scheme, but this has not been approved yet.
  • The spread of the support among firms of different size suggests that number of employees and the support per employee was spread evenly across companies (see Table 2)

  1. https://www.employment.gov.sk/files/slovensky/ministerstvo/analyticke-centrum/analyticke-komentare/kurzarbeit-porovnanie.pdf

  • The automotive sector, which is the backbone of Slovak manufacturing, stopped most of the production in March and April, but has been gradually restarting their production in late May and early June.
  • The number of cross-border workers, many of whom in the care sector, constitute 5.2% of Slovakia’s labor force. Although border controls made it difficult for them to commute or travel between their workplaces and homes, many of them adapted by staying in their host countries. In addition, special arrangement have been made for them, and those working within 30km, later 50km, from the border could travel back-and-forth without quarantine or tests. Slovakia is further liberalizing the border regime in June 2020.
  • Four physical distancing measures studied by Kahanec et al (2020): events ban, school closure, non-essential shopping ban and prohibition of non-essential movement decreased the presence of workers at workplaces by circa 54%. While some of the workers could not continue performing their work, others continued working from home (home office).
  • Telework and working from home is regulated in the Slovak Labour Code since 2007 (§ 52 of the Labour Code on working from home and telework). As of working from home and telework related to lock-down, most of the employees who worked on homeoffice should fall under section 5 of this paragraph which explicitly says that homeoffice in exceptional situations is not considered as telework.
  • If working from home or telework is considered as the main form of work, some working time regulation does not apply to the respective workers. This may negatively affect the working conditions of such workers.
  1. Kahanec, M., L. Lafférs and J.S. Marcus (2020) ‘The impact of COVID-19 restrictions on individual mobility’, Bruegel Blog, 5 May

  • The number of vacancies declined sharply and the labor market will offer only limited opportunities during the COVID-19 crisis. The Economic Crisis Council is proposing internship schemes for graduates to support their school-to-job transition.
  • Besides the proposed internship support Slovakia is running program to support young people in their first employment since 2015 through the program of youth guarantee and support the idea on the right on the first job. Nevertheless, some of the programs to support vulnerable groups on the labour market were stopped in May 2020 and are now reconsidered by the COLSAF.

  • This seems to be too early to evaluate, but there are some discernible developments already
  • Whereas the policy innovation is rather incremental than revolutionary, Kurzarbeit has been introduced as a novel instrument. It is hard to say now whether and how it will survive beyond the crisis.
  • One of the key questions is how the automotive sector in Slovakia will adapt to the shock and also the overall push on further greening of its production. One scenario may be that Slovak factories will in fact increase their production of cheap combustion-engine cars, satiating the increased demand for such car by the crisis-stricken population, whereas the factories in the home countries of the mother companies (VW, KIA, PSA, Jaguar – Land Rover) will innovate and produce electric cars. This poses risks for the long run, especially if state-aid in home countries is conditional on the production of electric cars and related supplies staying in home countries for a long time.

  • Slovakia could sustain the current policy stance for several more months, although its fiscal space is rather limited. The current policies burden its fiscal position and future generations, which is particularly problematic given that Slovakia has one of the most rapidly aging populations in Europe.
  • The overall situation is evolving rapidly, as Slovakia has been vigorously reopening its economy in May and June 2020.
  • Although Slovakia is upgrading its anti-COVID-19 aid package, the hope is that with the reopening the economy will rebound and the policy measures will not be needed for too long. Very much depends on foreign demand, and hence on the speed of recovery in Slovakia’s main trading partners in Europe and beyond. Coordination at the EU level is therefore essential.
  • As the economy is nearly fully reopened as of June 2020, the key measures are: 1) preventing the number of cases from increasing, resulting in the need to step back with the reopening; 2) related, testing and tracing vigorously and smartly, isolating active cases, making the health sector more resilient; 3) providing for the adjustment of the economy to the changed economic conditions and opportunities under the new post-COVID-19 normal (e.g. digitalization, greening), including technological advancement and upgrading its position in value chains; 4) fighting poverty, social exclusion and excessive inequality in the labor market and education, ensuring a decent living standard for all; 5) reforming and upgrading its governance and administration.

Expert Survey Questionnaire

How do you asses the current impact of COVID-19 on the labor market in your country in terms of employment, unemployment, sectors, and firms? Who is affected the most? What do you see in terms of sectoral employment reactions, and regarding permanent, fixed-term or agency workers? Are current figures and estimates more or less in line with earlier forecasts or are there some unexpected or even surprising deviations?

What is the general orientation and targeting of the measures adopted to tackle the labor market impact of COVID-19 in your country? Is the summary in the OECD inventory appropriate? Have there been recent changes or new initiatives? How do you assess the overall policy set adopted so far? Have certain aspects or target groups been neglected in the policy packages adopted?

Regarding policies providing immediate liquidity to bussinesses in your country: How do you see the actual take-up of these support measures, also by small firms, self-employed and freelancers? To what extent do the measures in practice help mitigate the economic impact of COVID-19? How do you see the delivery and implementation by public agencies and other entities, taking into account the trade-off between quick delivery and deadweight losses or misallocation?

Regarding dependent workers in your country: How do you assess the effectiveness of unemployment insurance and short-time work in stabilizing income and jobs at the moment? To what extent do short-time work measures help reduce or postpone inflows into unemployment (and for whom)? Is this being complemented by sectoral or firm-level agreements? What is known about the support delivered to job seekers now? Has activation by active labor market policies come to a halt?

To what extent are working conditions and work organization within firms in your country changing at the moment, in particular in sectors where there is an increased or normal workload? How do working time rules, mobile working rules, or care arrangements respond to that in practice?

How do you assess the situation of new labor market entrants in your country in this year, in particular the situation of school or university graduates? Are there policy innovations and initiatives to cope with this particular situation regarding hiring, provision of apprenticeships etc.?

Do you see further remarkable developments and issues in your country, e.g. unexpected policy innovations, changes in employment, new trends? Can you already identify (changes in) medium-term or long-term trends on the labor market that are due to the crisis (e.g. accelerated structural change)? How will the general functioning of the labor market be affected in the long run?

Can the current policy stance (reduced economic activity, combined with public income support) be sustained in your country, and for how long? What do you see as necessary and useful next steps, in particular to revive economic activities (soon)? How do you see the current and future fiscal viability of the crisis relief measures?