Spain | Why the Austrian backpack?

Summary

At BBVA Research, we believe that the so-called Austrian backpack could help ensure compliance with the EC's recommendations. The main reason is that it would reduce the uncertainty surrounding dismissal costs and, with the right design, encourage open ended contracts while also favoring labor mobility.

Key points

• Key points:
• The measure involves companies making monthly contributions to publicly managed savings accounts for each worker. These contributions then act as part of severance payments in the event that the worker is dismissed.
• For companies, this system would alleviate the financial planning required for dismissals and reduce the need for liquidity in the event of falling demand. Moreover, the decision to dismiss a worker could be based more on productivity criteria, as the differences between the marginal costs of firing workers with different contract lengths would be reduced, making dismissing the newest employees less attractive.
• It also offers many advantages for workers. As it is their own personal fund, they take it with them if they change employer, encouraging labor mobility. Furthermore, even if a worker is never dismissed or unemployed, the savings can be used as a retirement fund.

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