As Investment Officer knowledge partner, Universal-Investment’s Luxembourg country head Sofia Harrschar argues that reforming the EU regulation on social security would be in the interest of Luxembourg’s financial services sector and the many thousands that it employs. The industry meanwhile, needs to adapt quickly, look across the border and develop new ways of working.
Around 200,000 cross-border commuters from neighbouring regions come to work in Luxembourg every day. Many of them have jobs in the financial industry. The country has been renowned as an attractive working environment for decades with a good salary level and a social security system that offers many benefits in comparison to others.
Add to this its international flair: English is the common business language next to the official languages French, German, and Luxembourgish. Luxembourg is the most multilingual country in Europe. According to Eurobarometer an average of 3.6 languages are spoken by residents and 84 percent speak at least two languages, enabling the workforce working in Luxembourg to communicate easily with clients around the world.
Over the last couple of years however, the grand duchy’s allure has developed a few cracks: First, the shortage in specialised employees is felt in almost every area. This is a problem the country shares with its European neighbours. There are however, a couple of factors that are Luxembourg specific and which need to be tackled in order to attract talents to the finance industry.
Enhance cross-border planning of public transport
The share of cross-border commuters among the employees in Luxembourg has grown from 3 percent in 1961 to 42 percent in 2016. In 2018, the average cross-border worker spent up to two hours a day on the road, according to a government-sponsored study by Adem and a study on cross-border employment in Luxembourg.
Relocation is mainly only an option for well-paid professionals as the cost of living in Luxembourg is comparatively high. This reduces the attractiveness especially for professionals from Eastern Europe. Therefore, most skilled workers will continue to come from the border regions in the future.
In order to keep and enhance the attractiveness of working in Luxembourg for this group of people, transport planning should become less nationally oriented. Tariff systems and connection offers of railways and bus lines must become more aligned; transport authorities should aim at closer cooperation.
Changes in European legislation necessary
Financial institutions in other countries like Germany have made working more flexible and offer hybrid working models where possible. For commuters to Luxembourg, the possibility of regularly working from home would be a clear benefit.
But there is an impediment to be taken into account: According to the European regulations regarding social security, workers are only allowed to spend a maximum of 25 percent of their work time outside of the country in which they are employed. If you work from home e.g., in Germany for more hours, this could make you lose your social security status in Luxembourg.
It is therefore necessary to reform the European regulation on social security to reflect the changes in the working environment. Instead of sticking to country borders for example, a certain radius around the workplace or place of residence could define which social authority is liable for the respective employee in the future. In addition to this, more liberal double taxation agreements between Luxembourg and its neighbouring countries would be another important step towards more flexible working models.
Industry must adapt quickly
In this changing environment, active employer branding becomes more vital than ever for the finance industry. Activities could include expanding cooperations with universities and the development of courses that are tailor-made for the needs of the financial sector in Luxembourg as well as the creation of dual study programmes. Traineeships for young graduates as well as attractive programmes for employee-wellbeing or team building can help to make a potential employer more visible and attract new talents.
More flexibility is key and together with changing their own internal approach, institutions should use their influence on the regulators to support this new way of working to reach the common aim of making the Luxembourg financial industry more attractive again.
Dr Sofia Harrschar is country head Luxembourg at Universal Investment, a knowledge partner of Investment Officer Luxembourg.