Bridges
to the
Labor Market
Economic Report 2003

Economic Report
Bridges to the Labor Market
2003
Foreword 4
What’s it all about? 6
What are we doing? 16
1. We are accelerating job placement and creating
new organizational structures in labor administration 20
2. We are restructuring the benefit system 25
3. We are using temporary employment as a gateway
to permanent employment 34
4. We are building bridges to self-employment 40
5. We are supporting reintegration 46
6. We are improving the quality of the training and continuing
education programs on the market 54
7. We are making labor law more flexible 61
8. We are reviewing collective bargaining law 67
What happens next? 72
Acknowledgements 80
Publication data 81
Order information 82
I
II
III
4
Economic Report 2003
To our readers,
2003 has been a year dominated by basic reforms whose aim is to create more growth
and employment. The reasons are obvious: for the third year in a row, the German economy
will grow less than anticipated, again falling short of what is necessary. Last year, the unemployment
rate again exceeded the 4 million mark. There are currently significantly more
than 4 million people without jobs. This unsatisfactory trend can be in part attributed to
poor growth on the global economy. Germany, with its heavily export-dependent economy,
suffers especially from this trend. But this is only part of the truth. With the exception of
the special efforts being made to reconstruct East Germany, our economic problems are also
the result of the inflexible structures on our labor markets and in the social security systems.
We want to lead our country back to full-employment with our policy for growth and
employment. To achieve this goal, each individual will have to make his or her own personal
contribution. It is time to change how we think and scale back the numerous demands
placed on the state. We must place more emphasis on personal initiative and individual
accountability. In the short-term, many of the reform measures will feel like cutbacks.
But in the medium-term, we all stand to gain from the improved opportunities for employment
and income.
These measures are necessary to prepare our economic system for the future in light of
demographic changes and globalization. It is not about dismantling the social system but
rather adjusting it to changed conditions. The primary focus is to give all individuals in
Germany the opportunity to use their talents in a productive way for themselves and for
society. This is why we must provide support where necessary but also expect sacrifice when
appropriate. This is also why we have to change regulations that, even though they protect
those who have jobs, make it more difficult for those who are seeking work to find regular
employment.
The seriousness of the situation demands action. But it does not justify disparaging
remarks about Germany as a place of business. Criticism is necessary to move forward but
it cannot be allowed to be destructive. Nor should each reform proposal that affects oneself
be rejected from the outset. It is correct that we have problems that we finally need to solve.
It is also true that Germany remains one of the strongest national economies in the world,
is the second strongest export country and an internationally competitive and attractive
place to do business. Since the middle of the ’90s, the share that Germany has of the global
export market has risen from 9 to 10 %. Last year, direct foreign investments in Germany
reached 40.4 billion € exceeding the previous year’s by 2.5 billion €. Corporate taxes have
Foreword
5
also declined considerably as a result of the tax reform so that now Germany is at the lower
end of the mid-range when compared internationally. The German inflation rate is the lowest
among the Euro countries. Germany is the forerunner in Europe in opening up the market
for network industries and has become an important location for biotech companies.
And, in light of the upcoming eastward expansion of the EU which will increase the domestic
market to 450 million people, we have to focus more on our opportunities and play
off of our strengths. And, we must work to consistently eliminate our weaknesses. The engine
of reform is in high gear. The first laws have been adopted, others are in parliamentary processes
and there are more that will directly follow. It is imperative that we work to reduce
the high unemployment rate that has solidified more and more as it prevents millions of
people from participating in the working world and has put the brakes on growth.
For this reason, the 2003 Economic Report entitled “Bridges to the Labor Market” addresses
the subject of employment policy in detail. It must be clear that we can only achieve visible
success if the entire bundle of measures is implemented. This report is to contribute to convincing
you of the necessity of these reforms.
Our campaign called “teamArbeit für Deutschland” (teamwork for Germany), that we
launched in June 2003 also serves this goal. This campaign is designed to make each and
everyone aware of his or her own responsibility for the success of the whole and to stimulate
individuals to take concrete steps to mobilize training and jobs. All of the laws in the world
will not be successful without the involvement of those who share accountability in the business
and labor world.
I invite you, our readers, to join me on our way to more employment and growth in
Germany and to bring with you all of those who are still hesitating but who we also need
in order to give Germany a secure future.
Wolfgang Clement
Federal Minister of Economics and Labor
“The primary focus is to give all individuals in Germany the opportunity
to use their talents in a productive way for themselves and for society.
This is why we must provide support where necessary but also expect
sacrifice when appropriate.”
6
Economic Report 2003
What’s
it all
about?
I
•
•
7
Arbeit (work) [Old High German ar(a)beit meaning “toil”, “scourge”] – deliberate,
goal-oriented activity performed by humans to ensure survival and satisfy personal needs;
work also gives the individual purpose.
This is the definition given in the German Brockhaus dictionary. The definition ranges
all the way from “I work therefore I am” to “I am therefore I work”. It is formulated in such
a vague way that not working does not necessarily rule out survival and purpose. It subtly
reflects an attitude about work and leisure that is expressed much more succinctly in several
common German sayings.
Among the international community, we Germans have a reputation as industrious and
disciplined. This certainly comes as no surprise because this is also the way we see ourselves.
For generations now, the way we view life has been strongly influenced by our close identification
with the Benedictine formula “ora et labora” (”pray and work”) as well as the
Protestant work ethnic. “People are born to work just as birds are born to fly.” Luther used
this primacy of work to counter the monks’ attitude towards work and prayer. In Luther’s
view, they were one in the same: “those who work faithfully, pray twice”. Work was simultaneously
a prayer and a sacrificial offering.
Work
•
•
Source:
Allensbacher Archiv,
IfD surveys; those
polled were working
adults under the
age of 30: From:
Aus Politik und
Zeitgeschichte
B 29/2001.
Changing values about work as seen in a public opinion poll
Question: “Generally speaking, what are your favorite hours in the day:
the hours when you're working or the hours when you're not working, or do you like both?”
1960
20%
30%
40%
50%
60%
70%
1965 1970 1975 1980 1985 1990 1995 2000
“Hours when I'm not working.”
“I like both or hours when I'm working.”
8
I What’s it all about?
This theological superstructure lost its significance with the advance of industrial activities
and then later with the increasingly individual layout of workplaces and types of work.
In 1924, Kurt Tucholsky called the place where Germans work the “holiest of all holy places”.
In part due to economic hardships among the populace, ethical standards became less compelling
than the material fruits of labor. More and more, people didn’t live to work but
woked to live (and increasingly well). Ultimately, however, this did not really change basic
attitudes towards work. Even though the traditional morality of work was questioned during
the protests of the 1960s, today having a positive attitude toward both working and enjoying
life are not considered contradictory but a modern perspective on life. Associated with this
attitude is the desire for self-realization that comes from applying one’s personal talents in
a profession and at the same time being able to adequately provide for oneself. It is also
accompanied by the desire to participate with one’s fellow citizens in shaping the social and
economic processes in our country. Unemployment, particularly long-term unemployment,
makes it difficult to fulfill these desires. Unemployed individuals, instead of being able to
support themselves by working are supported by the state. They are excluded from social
structures in many areas and can no longer actively participate in society.
•
Source:
IAB: Survey on the
structure of unemployment
2000;
Number of people
surveyed >5400
Willingness of unemployed individuals to make concessions (as a percentage)
I would accept the following:
Without hesitation With reluctance Under no circumstances
59 28 14
57
45 42 13
42 431 5
3 4 5 2 13
33 42 25
19 55 26
11 26 63
29 14
• Change in profession
• Irregular working hours
• Work below my level of expertise
• Longer traveling time to work
• Less interesting work
• Uncomfortable working conditions (noise, dirt)
• Lower income
• Relocating
9
Unemployment is not just the problem of the individual directly affected by it
but of society overall.
For the individual, unemployment represents financial losses. He or she must make due
with a maximum of 67 % of previous net earnings without any equivalent drop in expenses.
The unemployed suffer from being excluded from “normal, day-to-day working life” and no
longer have a daily rhythm. To quote Tucholsky again: “There has to be a job to go to every
morning. Otherwise life has no purpose”.
Being dependent on state support affects one’s self-esteem. The shortage of jobs and the
continuous rejection experienced during the application process reinforce the individual’s
doubts about being a “valued member of society”. While it was common practice in some
trades 100 years ago to give the worker knocking on the door in search of work a small gift
if his search was in vain, today those looking for jobs can be happy to get any response at all
to their applications and resumes. Many people feel that they are just being “managed” by
the job centers rather than advised which is not surprising since there is only one job placement
adviser as many as 800 unemployed people. If jobs remain scarce and the pressure to
accept these jobs low, individuals will be tempted to find alternative ways of increasing their
disposable income in the “informal economy” and doing something “practical”. Some pursue
this course deliberately so that they can live as well as possible with the least amount of
effort even if they harm society as a whole in doing so. However, the overwhelming majority
of unemployed individuals is willing to make concessions in working conditions to find a new
job as shown by the figure on page 8.
Unemployment also takes a toll on society. It must be able to raise enough funds via contributions
to social insurance and taxes to support the unemployed through the job centers and
the social assistance offices. Society must also be able to cope with the fact that the loss of a
job for colleagues, neighbors, family members is simultaneously a loss of a focal point and
those affected by it can be plagued with fears about survival. Insecurity about keeping one’s
job is on the rise. Local economies are adversely affected by the decline in the purchasing
power that unemployed individuals have as well as the increase in savings driven by fear.
Social tensions often run high in regions with high unemployment rates. Activities undertaken
by the unemployed to generate additional income under the table, whether real or
only suspected, and fraudulently obtained transfer payments from the state can foster resentment
among the “paying” population. Social solidarity is disintegrating. At the same time,
society’s performance level is falling because the acquired knowledge and professional skills
possessed by the unemployed are not being used in economic processes and they are gradually
becoming obsolete.
•
•
•
Volker Theil
from Mülheim
“I have been unemployed since January 25, 2002. I am isolated
and can no longer participate in society. I hope and appeal to
our politicians, the employers and the trade unions to finally
take the necessary steps and think about the people who want
to work. I want to work again.”
10
I What’s it all about?
Unemployment has many possible causes.
Some of these causes cannot be influenced by us. We must, however, finally tackle those
that do lie within our sphere of influence with the utmost determination.
One of the factors over which we have very little control is the weak growth in the world
economy. It is affecting the German economy more profoundly than would be expected from
the already high proportion of Germany’s gross domestic product made up of foreign trade.
The German economy’s dependence on international developments is reinforced by the large
numbers shared foreign and domestic subsidiaries, the close interplay of national and international
financial and capital markets and the synchronization of sentiment and assessments.
This means that poor global economic conditions result in much higher economic unemployment
than before in Germany and, according to the International Monetary Fund, throughout
the rest of Europe as well.
There are also developments that we support due to the advantages that they have for the
overall economy but which are also not without victims on the labor market. As an exportoriented
country, Germany has traditionally stood for free global trade and open market
access. The German economy has benefited tremendously from this: it has accessed new
markets and secured its position as a leader among its international competitors, particularly
in the area of higher-quality products and services. This made it possible for many jobs to be
created with comparatively high levels of productivity. This, in turn, allowed salaries and
wages to be high and gave those working a high standard of living. The flip side of the coin,
however, is that higher wages have meant that simpler, more labor-intensive products are
almost no longer produced in Germany but rather imported. It is difficult for the workers
affected by this trend to find new jobs. Many of them remain unemployed for long periods
of time despite taking part in interim retraining programs. Competition is accelerating as
the German markets are opened to more competition, for example, in postal services, telecommunications
and the energy sector. This results in lower prices and higher quality services.
But the existing potential for productivity is currently also being taken advantage of
particularly in companies that were previously monopolies. And, the victims of rationalization
programs are usually those employees with fewer skills who make a smaller contribution
to state funds. The improved supply for companies and consumers and new employment
opportunities for some must be seen vis-à-vis the layoffs of others in the affected markets.
•
•
•
If it is obvious that it is in everyone’s interest
to keep unemployment low, why do we still have
unemployment and why is it so difficult to reduce?
11
If you want to know what a market is and how it
works, just visit an indoor or outdoor green market
in your hometown. Here, producers and merchants
offer vegetables, fruit and other day-to-day items
for sale. These merchants represent the supply side
of the market. The people who purchase goods
from them form the demand side. The prices are
initially set by the suppliers. Their prices are determined
by taking the production costs or wholesaler
prices as a “base price” and adding a “profit markup”.
If the total price is too high, there is no
demand and the profit markup has to be reduced.
If, however, the consumers are racing for more,
there is evidently some freedom to increase the
profit markup. The amount of this markup, therefore,
depends primarily on supply and demand.
If the price levels off so that the entire supply is
sold, economists refer to this as “market clearance”.
For merchants, market clearance means it is time
to leave the market. If you watch them, you will see
that they generally do not sell their entire supply,
mostly because they do not want to sell “under
price”, i.e. at a loss, and that there was not enough
demand at prices to cover costs. Accordingly, they
will reassess their prices again for the next market
day. Do the correlations identified here apply only
to asparagus and tulips or do they also apply to the
supply of labor?
Everyone is talking about the “labor market”. But it
cannot be seen as flexibly as the weekly green market.
The job centers, while they do bring together
those seeking work and companies with positions
to fill, much of the supply and demand passes them
by. This is even more so the case for classified job
ads appearing in the daily newspapers and on
many websites. One difference, however, is much
more significant: while prices at the green market
clearly adjust up or down depending on excess supply
or demand, this situation is much more onesided
on the labor market. When shortages exist in
certain areas of the market, higher salaries can be
negotiated. This is the case, for example, with
IT professionals or other highly-qualified experts.
For it is true that the German economy has international
competitive advantages particularly in highquality
products and services. The demand for
skilled workers is also accordingly high. On the
other hand, if demand does not exist for the available
supply in certain market sectors, salaries do
not generally adjust to market prices. This is, for
example, the case with low-skilled activities and
workers: these types of services can be supplied
much more affordably in the low-wage countries
than in Germany with its current wage levels.
Low-skilled workers are, as a result, not really in
demand. Unlike the situation at the green market,
there are no consequences for the supply side.
Generally, these people are taken out of the market
and supported by transfer payments from the state.
The inelasticity of wages downwards has two primary
causes. First, (minimum) wages are fixed in
collective agreements. If there is not a corresponding
output stemming from these activities, these
employees are “above price” for the company, i.e.
they produce less than they cost. Second, low-wage
groups can exist as a result of collective agreements
for which employment would be profitable
for the companies but not for the workers themselves.
This would be the case if the amount they
earn it is below or only slightly above state assistance
funding (unemployment benefits and assistance).
Workers would sell themselves “undervalue”
and accept income losses or would hardly
do better with a job than without one. The state
transfer payments are, as a result, often called minimum
wages because they define the lower limit for
expected compensation.
Collective bargaining agreements and/or state support
payments can also trigger a “market clearance”
resulting in unemployment. This type of unemployment
is referred to as “structural unemployment”
because it can only be reduced through
structural reforms. The term “economic unemployment”
on the other hand, refers to unemployment
that caused by economic weaknesses and crises.
The expectation is that it declines when the economy
picks up again. In reality, it can turn into structural
unemployment if the economic weakness
does not abate. Structural transformations are
always occurring: knowledge becomes obsolete
very quickly, threatening to drive the skillsets required
for jobs farther apart from the skillsets possessed
by employable individuals.
In reality, the situation on the labor market is naturally
complex and more intertwined than represented
here. But this simplified description does make
one thing evident: the labor market is a special
market.
The Labor Market – A Market Just like Any Other?
12
I What’s it all about?
However, demanding that the structural transition and
the opening of markets be stopped because they contribute
to unemployment would be the wrong conclusion.
Attempting something like this would stifle initiative and
the willingness to innovate and shift “hidden unemployment”
to companies. The collapse of the East German
economy should not be forgotten as an example of this.
It would also be incorrect to assume that we do not need
to worry about unemployment because Germany, as a
country that benefits from globalization, can afford to
pay for it out of its generous social insurance systems.
This attitude has been engrained in our support system
for a long time now and has made the high unemployment
rate, while alarming, seem bearable (see caricature
from 1977, the third year that the unemployment rate
was just over one million in West Germany – this year
the unemployment rate in Germany is considerably more
than 3 or 4 million for the 11th year in a row).
•
1975 ’77 ’79 ’81 ’83’85 ’87 ’89 ’91 ’93’95 ’97 ’99 2001
Unemployment and low-skilled unemployed individuals
Source : Federal Employment Service
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Unemployed in former
West Germany and
West Berlin
Unemployed in former
East Germany and
East Berlin
Unemployed without
professional qualification
in former East Germany
and East Berlin
Unemployed without
professional qualification
in former West Germany
and West Berlin
Source: FAZ, 1977
1 million unemployed. Gotten used to them?
13
In reality, pursuing this course only gave the appearance of reflecting social concerns.
From a factual standpoint, it contributed to excluding employable people from employment.
It established the wrong incentives. Instead of encouraging people to take on jobs, it financed
them to stay unemployed. Attempts by individuals to work toward gainful employment
by taking on part-time work was prevented by limits set on additional income. This only
serves to reinforce existing tendencies to choose unemployment benefits and activities in
the informal economy over regular jobs. The lack of job placement services and training
programs with unclear objectives offered by job centers intensified this trend even more.
Up until a few years ago, it seemed that the primary responsibility of the job center was to
ensure that the unemployed received the appropriate wage replacement benefits they had
coming to them. However, its ability to place the unemployed in jobs was also quite limited
because economic growth was not strong enough to create an adequate supply of jobs for
those seeking work.
This approach is also expensive. The social insurance system is financed by working wages.
The burden of this system is borne by employers and employees alike and therefore directly
affects the labor costs of companies. The high rate of unemployment and the aging population
have led to less money being paid into the social insurance system and more money
flowing out. In addition, many of the costs of German reunification were and are financed
by contributions to social insurance rather than taxes. All of these factors put a strain on the
economy and society, curtail consumer and investment demand and jeopardize Germany’s
international competitiveness. The pressure on costs also continues to accelerate the process
of excluding low skills workers from the working world and society as a whole.
Ultimately, the problems on the labor market can also be traced back to labor policy developments
over the last few decades. Wage policy has basically revolved around fluctuations
in average productivity trends. The result is that employees who are less productive and
companies with poor earnings can no longer survive on the market. In addition, for social
reasons, policies were pursued which reduces the margin between wages of higher and
lower-skills workers rather than the reverse: the wages of lower earners were increased more
than higher earners. The result has been that there is less and less demand for less productive
employees because their productivity level cannot keep up with this increase in wages.
It would be unprofitable for them to work. What was intended as an increase in the living
standard for lower wage earners ended up being a descent into unemployment for many.
So what can be done?
•
•
•
•
14
I What’s it all about?
1
2
3
4
5
Five steps to reducing unemployment.
Our goal must be to increase both economic growth and the supply of jobs as well as
to reduce the employment threshold at which economic growth is reflected in additional
employment.
First, economic policy must be geared towards more growth and employment. This requires
adherence to the “magic triangle of financial policy”: lower taxes, reduce debt and increase
future spending for research, education, family and infrastructure. This requires a forwardlooking
structural policy. This policy must set favorable framework conditions for founding,
establishing and growing companies and must eliminate and prevent competitive obstacles
on the goods and services markets. This requires a reform of the social security system the
consequence of which would be lower contributions to social insurance. The concrete steps
for achieving this can be found in detail in the federal government’s Annual Economic Report
2003 (see reference on page 82).
Second, labor market policy and programs promoting employment must be restructured in
such a way that those without jobs can find new jobs on the primary labor market as quickly
as possible. The Hartz Commission has drafted a plan for achieving just that. According to
the plan, the jobless must be given more intensive support, new paths must be found for
reintegration and more pressure put on the unemployed to accept jobs. These topics are the
focus of this report.
Third, company interests must be taken more into account in collective bargaining policies.
Wages that are more firmly in line with the financial situation of the company and the productivity
level of lower skills workers must be permitted.
Fourth, long-term considerations must play a stronger role in companies: training young
people, employing older people, retraining all employees, etc. All of these considerations
should be in the self-interest of companies because the important thing is tapping the potential
of qualified and motivated personnel. Demographic developments will accelerate this
understanding. Preventative action does not just benefit the ability of companies to perform
but it also fulfills a company’s social responsibility to include all sections of the population
in the working world. If this responsibility is left to the state, it becomes more difficult to
complain that taxes and contributions to social insurance are too high.
Fifth and finally, not only must awareness be raised among the general public about the
necessity of reforms but the idea that social cohesion is not just the responsibility of the state
but of each individual must be fostered. There should be social consensus that each person
use his or her skills and opportunities rather than expecting help from the state. There
should also be social consensus that those fit to work, those who are working or willing to
work should receive more to live than those who withdraw from the working world. There
should be social consensus that lower taxes and contributions to social insurance can also
mean a higher standard of living, that the individual doesn't just assume more responsibility
for himself but also for his surroundings, his fellow citizens, his region and his environment.
None of these steps alone can solve the labor market problems. They will only be able to
reduce unemployment to a limited extent if growth is not sufficient to create enough additional
jobs; in the same way, more growth would only have a limited effect on employment
without greater flexibility of the labor market. Consequently, all five of these steps must
be undertaken together. We have waited too long to adjust our economy and society to the
challenges of globalization, a united Europe and demographic and technological trends.
Continuing to wait would further aggravate the problem instead of solving it. Two German
sayings come to mind here: “what one considers for too long becomes a consideration”.
And: “what will be will be”.
15
What economic reforms do you feel are necessary?
The key milestones are reforms to the tax, pension and
health-care systems. If our politicians are not successful
in restructuring the social insurance system in a forward-
thinking way, the non-wage labor costs as well as
the unemployment rate will continue to rise. We will
only be able to have a positive effect on employment if
we can make labor more affordable and hence, more
competitive. To create the necessary financial latitude
for this, the state must, first and foremost, put its subsidy
policies to the test. A 10 percent cut in state subsidies
over a one-year period across the board regardless of
sector would be a good first step and would make a lot
of sense. But this would only be the beginning, additional
steps would have to follow and be consistent.
What expectations do you have of the collective
bargaining parties?
Both sides need consensus but live from conflict. Those
are just the rules of the game: and the social market economy
in Germany has been able to prosper with the
these rules for a good fifty years now. But there are
times like these when it is not so much about individual
interests but about our common welfare and the sustainability
of a country. This is why I would have heartily
embraced a crowning success for the Bündnis für Arbeit
(German Alliance for Jobs). Unemployment can only be
reduced if politicians, trade unions and industry through
work together to achieve more flexibility in collective
bargaining agreements and moderate pay settlements
and do away with bureaucracy.
What can your company do for Germany?
It is not enough to just complain about the overall economic
conditions that govern Germany as a business
location. Companies have to do a lot more than they
have up to now in coming up with innovative proposals
and being more involved in discussions about economic
policy. For example, if you demand an effective reform
to the corporate tax system, you must also be able to
offer the politicians something in return as far as financing
goes. As a result, Porsche built its new Cayenne factory
in Leipzig without any of the subsidies it was entitled
to. Mature and healthy industries do not need any
government assistance. We, as German businesspeople,
must be conscious of the fact that we have a social responsibility
vis-à-vis our country. Because ultimately we
also want to enjoy the advantages and the comforts of
Germany as a business location in the future. And this
won’t happen at no cost.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
As the CEO, continuing to keep Porsche on track for
growth. Because if we are successful, we will continue
to create new jobs. ‘Made in Germany’ is our greatest
trump card. And Porsche is setting its sights here in the
future as well.
“In times like these, we must
focus on securing the future
of our country.”
Dr. Wendelin Wiedeking
CEO Porsche AG Germany
16
Economic Report 2003
What
are we
doing?
II
17
There are currently only approximately 900,000 open positions for the more than 4 million
unemployed people. Of these open positions, only a good third of them have been registered
with the job center. The number of jobs must be increased by working more closely together
with companies and unemployed people must receive more intensive counseling services so
that they take advantage of these jobs. Experiences both at home and abroad have shown
that the number of employable people in need of financial support can be reduced by 15 to
20 % by offering comprehensive counseling services.
This is the line of attack that reforms to the labor market will take: the Federal Employment
Service and the job centers will focus more intensively on job placement activities. The
new job centers will become the central contact point for all those who are fit to work and
seeking jobs. These job centers will bundle the service offerings of the job centers, the social
offices, the inde-pendent providers and others so that their customers are effectively advised,
supported, placed in jobs or receive training. In addition, job placement agents and counselors
will be hired and they will be relieved of administrative duties.
To accelerate the reintegration of unemployed workers into the regular labor market, personal
service agents and independent providers will be commissioned to place certain target
groups into jobs, receiving their fee only once the person has been successfully hired. Being
able to place people in jobs quickly will lower the costs associated with unemployment.
By merely shortening the average length of unemployment by a week (currently more than
33 weeks), the number of those unemployed would fall by 115,000 and 1 billion EUR in
unemployment benefits could be saved. The greater the success in reducing unemployment,
the more room there will be for lowering insurance contributions to unemployment insurance
and for new financial opportunities at the state and local levels. In addition, quickly
integrating those affected back into the regular labor market will enhance their expertise
and advancement. By accepting a less appealing job, the probability of successfully finding
a new job more in line with personal goals increases. The responsibilities of the unemployed
will be redefined to communicate this insight more effectively. In a well-balanced plan of
“Give and Take”, their self-reliance and personal initiative is just as important in overcoming
unemployment as it is to use appropriate and effective integration mechanisms. The focus of
the plan is how individuals need to be involved in their own reintegration and how to financially
bridge the time during unemployment.
We are reforming the labor market so that
the unemployed can be placed more quickly in jobs
and new employment opportunities created.
•
•
•
18
II What are we doing?
If someone who is fit to work refuses a reasonable position, he or she will not be able to
rely on receiving financial assistance any longer in the future. Because “it cannot be society’s
responsibility to support someone who is able to work but who does not” (Norbert Feldhoff,
Vicar-General of the Cologne archdiocese). The problem with this definition is not new. As
early as 1748, a distinction was made between “actual poor people” and “willful beggars” in
an edict on providing assistance to the poor in Berlin. This consideration will also play a role
in the future for those who receive the new type of unemployment benefit, unemployment
benefits in Category II, which is intended for all of those who are fit to work and currently
receiving unemployment benefits or social assistance.
The other line of attack that reforms to the labor market will take is aimed at expanding
programs designed to reintegrate people into the workforce. The focus here is to create
more employment opportunities through temporary positions, support for self-employment,
giving companies who hire new personnel capital injections as well as relaxing legal restrictions
in labor law. These measures are designed not only to ensure that open positions are
filled more quickly in the future but also that new positions are created that had not been
up to now for a variety of reasons. The effectiveness of these measures will be supported by
a simultaneous reduction in restrictions, for example, in the manual labor sector or in temporary
employment regulations.
•
•
19
What you think of the “give and take” approach to
the unemployed?
Unfortunately, we have realized that the benefits of
unemployment insurance, which were originally supposed
to provide temporary assistance, frequently reinforce
unemployment rather than paving the way out of
it. To counteract this development, the labor market
policy must establish “give and take” incentives. Our
goal must be to get individuals to take their individual
responsibility seriously and stimulate their personal
initiative. The subsidiarity principle defines give and
take as maintaining the individual’s self-reliance while
at the same time helping him help himself. But labor
market policy alone will only be able to make a limited
contribution to reducing unemployment. It is more
important to establish a political framework which
makes economic growth possible. It is only then that
new jobs can be created, turning those seeking jobs
into those that have found jobs.
In your opinion, what are the necessary elements of
“Taking”?
Without being able to recommend specific mechanisms,
I think that we have to consider labor market
measures that place demands on individuals and are
even potentially seen as unreasonable. These could
includes limiting unemployment assistance or requiring
unemployed workers to accept lower paying jobs
or those that are farther from their homes. But I am
of the opinion that it is not just up to the unemployed
to make sacrifices. I would ask the question of whether
jobholders are prepared to accept compromises, i.e.
measures that demand something of them (such as
smaller wage increases and weaker regulations protecting
employees from dismissal) if these measures help
increase employment. The interests of “insiders” cannot
be served at the cost of the ability of “outsiders” to participate.
And what about the necessary elements of “Giving”?
The church is always striving to direct public attention
to the needs of the weakest members of our society.
On the labor market, these are primarily the older and
lower-skilled employees as well as those of foreign origin.
These groups need special support from the community
to find (new) jobs. In this area as in others, we
will have to consider new ways to promote lifelong
learning as a protection mechanism against the threat
of unemployment.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
Eliminating unemployment is one of the primary challenges
for a society that wants to create fair opportunities
for participation for everyone. Over the last few
years, we the Church have repeatedly voiced our position
on the topic of unemployment: either generally on
the economic and social situation in Germany or specifically
on the problem of participation in the memorandum
entitled “Mehr Beteiligungsgerechtigkeit” (More
Fairness in Participation). As a major employer and supporter
of numerous labor market initiatives and facilities,
the Catholic Church and in particular Caritas, is
making its concrete contribution to reducing unemployment.
“Labor market policy must create
incentives based on give and take.”
Dr. Josef Homeyer
Bishop of Hildesheim,
Head of the Commission for
Societal and Social Issues of the
German Bishops’ Conference
20
II What are we doing?
The Federal Employment Service is being restructured to become
a modern service provider.
At the beginning of 2002, a report published by the Federal Court of Audit received a lot
of attention. This report gave evidence that the job placement statistics provided by the
Federal Employment Service were not comprehensible in many areas and had been partially
manipulated. According to the report, up to 70 % of the job placement statistics had been
entered incorrectly on the books. In response to this job placement scandal and the deficiencies
in controls identified as a result of the scandal, the management structure of the Federal
Employment Service was redefined: instead of having a president and an honorary Board of
Directors made up of third-party members, a full-time, three-member Board of Directors has
been managing the business activities of this institute since April 2002. Since then, the first
steps have been taken to intensify job placement efforts. These include expanding job placement
capacity at the Federal Employment Service, discontinuing mandatory permission
required for private job placement agents and the issuing of vouchers so that the unemployed
can to take advantage of private job placement agents. These vouchers guarantee job
placement premiums of 1,000 EUR to 2,500 EUR depending on how long the individual has
been unemployed. Of the approximately 370,000 job placement vouchers issued since the
end of May, only 23,500 have been redeemed. There are several reasons for this. Not all those
who are unemployed rely on private job placement agents to find new employment but instead
decide to search themselves despite having received job placement vouchers. In addition,
if the individual is searching for employment for a longer period of time, even when a
private placement agent is involved, several job placement vouchers can be issued to the
same person as they are valid for only a three-month period. Expired vouchers can no longer
be redeemed. The difficult situation on the labor market is also contributing to people’s
reluctance to redeem the vouchers.
We are accelerating job placement
and creating new organizational structures
in labor administration
•
II 1
The Responsibilities of the Federal Office for Employment
The Federal Office for Employment is responsible
for carrying out the tasks of the employment promotion
laws (Part III of the Social Code).
In addition to offering career counseling and placement
in training programs and jobs, these tasks
also include actively implementing the labor market
policies of the federal government, advising
employers and calculating and paying benefits
from unemployment insurance (e.g. unemployment
benefits, maintenance benefits, short-term allowance,
winter weather allowances, etc.) It is responsible
for the tasks found in the Act on Temporary
Employment, Posted Workers Act, Act to Promote
the Readiness of Foreign Workers to Return to
Home Countries and the Severely Disabled Persons
Act. In addition, it acts on behalf of the federal
government, paying out unemployment assistance
and child benefits as the family benefits office.
Unlike other social benefit agencies, the Federal
Employment Service has its own administrative substructure.
This includes 10 regional job centers and
180 job centers with around 660 offices. These job
centers work with their local branches to handle
specialized tasks directly. The regional job centers
coordinate the specialized work performed by the
job centers. The headquarters, which are located in
Nuremberg, issue instructions which ensures that
the tasks are for performed in a uniform way. The
Federal Employment Service employees around
90,000 people and has a 2003 budget of approximately
53 billion €.
21
The fundamental overhaul of the Federal Employment Service which will take place this
year and next year means that obsolete administrative structures will be done away with and
the organization and processes associated with promoting employment will be consistently
aligned with corporate structures to the extent possible within the framework of this branch
of the social insurance system. 25 project groups are drafting the basic principles for improved
management, more sophisticated controlling mechanisms, enhanced operating efficiency
and a new HR strategy. In the future, the Federal Employment Service will be called
the Federal Agency for Employment. It will be made up of a head office, various regional
offices and local employment agencies. Target agreements between the head office and the
local employment agencies will give the agencies extra freedom to choose their methods
independently and based on their specific situation.
Job placement is the most important and cost-effective tool in labor market policy.
Job placement gets people (back) into regular jobs and helps them obtain further “on the
job” training. The key prerequisite for effective job placement is an adequate supply of open
jobs: in job center districts with low unemployment rates, people with the same skillset are
four times as more likely to find a position as people in job center districts with high rates of
unemployment. Consequently, the new agencies for employment are placing more emphasis
on approaching companies and identifying possible open positions. It is also important that
the skillset for the positions to be filled match the skillsets of those who would be considered
for the job as closely as possible. Finding this balance helps ensure that companies can cover
their employment needs adequately, that confidence in job placement services offered by job
centers increases and that people return more quickly to the working world. As early as the
beginning of the unemployment period, the individual strengths and weaknesses significant
for job placement are identified. The job center and unemployed individual work together to
create customized opportunity assessments (profiling) which capture the individual’s professional
and personal traits as well as his or her knowledge, qualifications, professional experience
and both ability and willingness to undergo further training. The necessary steps, such
as further training or assistance in the application process, are binding and recorded in a
reintegration agreement which is signed by both parties. If the unemployed individual cannot
meet the pace that has been agreed upon, for example, if he does not take part in a specific
event or misses a job interview, a period of ineligibility of up to 12 weeks can go into
effect. The job placement process now begins directly after dismissal. Since July 1, 2003,
employees are obligated to register with the job center directly after dismissal. This allows
the job center and the employee to use the time between dismissal and the beginning of the
unemployment period to search for a subsequent solution. If the dismissed employee registers
too late, he or she will be faced with a reduced amount of unemployment benefits or
unemployment assistance.
•
•
“After the scandal about our job placement figures, a great deal
of trust in our labor administration was lost. We want to regain
the ground we lost. The problem is also, however, that there is
a shortage of employment opportunities where we can place
people. And this is not a problem that we can solve.”
Jürgen Spatz
Director of the
Tauberbischofsheim
job center
22
II What are we doing?
The new job centers will become the central contact points between the labor force and
companies with jobs to be filled.
The Federal Office for Employment, the local social assistance offices and any independent
providers will work together in these centers with a clear division of labor. These centers will
not only offer the services of the Federal Office for Employment but also all other counseling
and support services relevant for the labor market that up to now had been provided by the
local municipalities: they provide advice, job placement services and ongoing training, submit
proposals for personal service agencies, give start-up and integration assistance, place
individuals in local public employment and monitor that the regulations are complied with.
Job centers will be the standard service facility for all employable individuals who are out of
work including social assistance recipients at the local level. This means, therefore, that they
will be responsible for all recipients of unemployment benefits. To ensure that the centers
can work efficiently, data between the job centers and the social assistance providers must
be transferred so that the centers can provide optimum consulting and support services for
employable individuals in need of assistance. The job centers will also act as partners for
companies and submit proposals for suitable personnel for open positions. They will form
teams to determine future regional qualification needs. These teams will work closely with
companies in the region. In addition, they will offer companies employment counseling services
as a new service. The job centers will be introduced step-by-step throughout the country
and will be designed to make use of existing structures.
The staff of the Federal Office for Employment will be involved more than before
in job placement activities.
This will be accomplished by relieving job placement agents from other responsibilities,
simplifying and categorizing job center responsibilities, equipping the offices with more
advanced technology and reorganizing personnel. It is estimated that around half of the
responsibilities that do not directly fall under job placement agents and counselors can be
assigned in the back office.
In the future, employer data required for income replacement benefits will no longer be
transferred on a case by a case basis in hardcopy format but will instead be centrally stored.
Access to data will be made possible by means of a job card (signature card) while still maintaining
data privacy. Moreover, unemployment benefits, unemployment assistance and maintenance
benefit allowance payments will no longer be adjusted to wage fluctuations. This
would require an enormous administrative effort. Also waiving the needs test for funding for
the application process and travel expenses as well as mobility aides will reduce the amount
of bureaucracy along with the transitional assistance that is now paid out as a lump sum and
the moving assistance which is now designed to be a grant.
•
•
•
23
The provider-specific quality criteria in professional continuing education programs will be
reviewed in the future by external offices with the appropriate expertise (certification agencies).
The new personnel-related and financial leeway gained as a result of these methods are
designed first and foremost to intensify job placement activities.
In the past, many job placement agents, depending on the labor market situation, were
responsi-ble for between 600 and 800 people seeking jobs; the future target is no more than
350. This also requires an additional increase in the number of job placement agents. This
figure was is already increased over the last two years from 8,000 to 12,000. Furthermore,
there will be more emphasis placed on performance-related bonuses as an additional motivation
particularly in the area of job placement. For case managers, who will be the future
contacts for recipients of unemployment benefits in Category II, the target number of clients
is 75. Their clientele is usually more difficult to place and hence, require more intensive
support.
•
•
Basic model for a job center
Front Desk/
Clearing office
Case management
Third-Party
• Private job placement agencies
• PSA, FbW-providers
In-depth areas
• Case management
• Profiling
• Contract
management
Local business
development office
• Local public
employment
Job center
• Job placement service
• Identifying positions
• Counseling services
• Medical services/
Psychological services
• Family Benefits Office
Local municipalities
(partially via independent
providers)
• Counseling
services
• Living allowance
• Childcare
• KJHG/BSHG
services
Job placement Service consulting
Specific employer
services
Supplementary
social counseling
Job Centers
– Conceptual Design and Discussion of Local Centers for Integration of the Unemployed
Under this title, the Bertelsmann Foundation
together with the Federal Office for Employment
and supported by numerous local communities,
contributed to the current discussion
about the conceptual design of job centers.
It illustrates various plans of action and possible
introductory models. Starting with a target
model Job Center 2003 Plus, both customer
groups and range of services for the job centers
are discussed as well as regional variations and
issues revolving around location, specific personnel
requirements as well as a step-by-step
implementation.
As an example of the multifaceted suggestions
of the groups of authors, the figure below represents
a basic job center model:
KJHG:
Act on Children
and Youth
BSHG:
Federal Social
Assistance
FbW:
Promotion of continued
professional
training
More information
can be found at
www.bertelsmannstiftung.
de/verlag
24
II
What were the shortcomings in job placement services
offered by the “old” Federal Office for Employment?
These shortcomings have been identified in the public
discussions that have now been going on for over a
year now. Unfortunately, these discussions have not
always been conducted objectively by all parties. We
must be able to acknowledge today that we did not
bring our work into line with the needs of our customers
to the extent that it would have been necessary.
This applies, in particular, to the customer group made
up of employers. We were also certainly not successful
in positioning the job centers correctly in the public
eye.
What has to change?
As an organization, we must work more effectively to
speed up job placement processes, help employers fill
open positions both professionally and quickly and provide
those seeking work with comprehensive and timely
counseling services. Labor market policy is being
optimized and the Internet-based offerings are continuing
to be expanded so that customers can take care of
a lot on their own on the “virtual labor market”. With
our new controlling system, we are gearing our activities
toward having a more sustainable effect on the
labor market. We are right in the middle of a restructuring
process which will make us modern provider on
the labor market whose course is in part set by legislators.
What services will the job centers offer the unemployed?
The job center as defined by “Hartz” will be a local center
for all services on the labor market under whose
auspices several partners work together. This will allow
integration of the jobless into the working world,
which is always the objective of the work performed in
the job center, to be conducted as a turnkey solution.
Because there are often people who have complex
needs, “case management” will play a central role. The
case manager will fine-tune the offerings of the individual
actors to the individual needs of those seeking
jobs and, in doing so, specify exactly the personal capabilities
of the customer. Our corporation with other
social benefit agencies, from credit advisers and addiction
counselors through to family assistance, educational
providers and personal service agencies, is being
expanded. As a preliminary step, we have expanded
the common contact points for the social offices and
job centers across the board in Rhineland Westphalia
and the Saarland so as to involve as many unemployed
people as possible.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do you
see for action?
As an employee of the Federal Office, I always considered
unemployment “my problem” and never someone
else’s problem. Because I have always personally
considered myself a “networker”, I have always sought
out cooperation with other actors on the labor market
in a variety of different functions. The Saarland network
for employment counseling is, just like the participation
of the regional job center in the “oval table”
of the regional government in Mainz and in the
“Saarland Community Initiative” in Saarbrücken evidence
of this. The problems are too multi-layered for
any one actor to successfully solve them alone.
“The job center as defined in the
Hartz report will become a local
center for all labor market services.”
Eva Strobel
President of the
Rheinland-Pfalz-Saarland
Job Center
25
There have been too few incentives provided for the unemployed to take on jobs.
To alleviate economic and social hardships, unemployed individuals receive unemployment
benefits, unemployment assistance or social assistance. In 2002, an average of around
1.9 million people received unemployment benefits (average of 765 EUR per month),
1.7 million received unemployment assistance (average of 510 EUR per month) and around
1.3 million employable people were receiving social assistance to make ends meet (based on
need: approximately 640 EUR for single people with no dependents, approximately 1,000
EUR for two-member households, approximately 1,300 EUR for three-member households).
Around 230,000 people received supplementary social assistance from the Federal Employment
Service because the original benefits were not enough to live on.
Major differences exist between unemployment benefits on the one hand and unemployment
assistance and social assistance on the other: unemployment benefits are financed from
contributions made by employers and employees to unemployment insurance; it is a benefit
that the contributor has a legal claim to. Technically speaking, unemployment insurance is a
(mandatory) way for the individual to take financial precautions in case of loss of income due
to unemployment: the individual has a right to the benefits regardless of whether a hardship
occurs as a result of job loss. Unemployment and social assistance, on the other hand, are
financed from taxes; benefits are granted only if the unemployed individual is found to be in
need as defined by unemployment assistance or social assistance. One is a benefit protected
as a legal claim which is designed to reduce financial risks and the other is a state welfare
benefit. This difference must be taken into account when considering how to restructure the
benefit system.
We are restructuring the benefit system
•
•
Unemployment benefits
12.1
16.1
21.8
23.4
24.6
28.4
30.3
27.0
24.8
23.6
24.6
27.0
Unemployment assistance
3.6
4.7
7.2
8.9
9.2
12.4
14.3
15.5
15.6
13.1
12.8
14.8
Subsistence assistance
7.3
8.0
9.2
8.7
9.6
9.9
10.3
10.5
10.0
9.8
9.7
not reachable
Year
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Expenditures (in billion €) for:
II 2
26
II What are we doing?
In economic terms, these transfer payments replace market wages as an alternative form of
income. For many recipients, they represent the minimum income that they would expect to
earn at their next job. If the pay being offered for open positions is at the same level or only
slightly higher, the individual does not have much motivation to accept the job. If labor administration
or the social assistance offices do not put pressure on individuals to accept work,
often the individual’s dependence on the transfer system is merely extended because the
choice is theirs whether they except the job or not. This tendency can be reinforced if the
individual simultaneously becomes active on the black market. However, based solely on the
average amount of benefits paid, the effect of this tendency should not be given too much
significance even though average values are often only meaningful to a limited extent.
International comparisons have shown that the primary factor leading to inflexibility on the
labor market is the eligibility period for benefits. The longer the individual remains unemployed,
the lower the probability that he or she will be reemployed.
The trend described above is reinforced by opportunities for earning additional income.
From the point of view of the jobless, it is often not worth it to accept work on a small-scale
because, except for a relatively small exempt amount, all wages that do not end the recipient’s
dependence on benefits are offset up to 80 percent or more. If an individual accepts
a lower paying job in the regular labor market, his or her income remains practically unchanged.
For a mini-job, which allows an individual who has full-time employment to earn
an additional 400 EUR (net), the legally applicable base has paid down exemption amount
remaining for an unemployment benefit or assistance recipient is 165 EUR (however, if unemployment
benefits are high, the entire amount can be exempt) and for social assistance
recipients, this amount is 120 EUR. This underscores the fact that the system was not designed
to get the jobless back to work by means of low-skilled or low-paid employment. At
the same time, it shows, also in light of the shortage of jobs, how great the incentives are
to supplement their social benefits by working on the black market. First and foremost, the
social system must be structured in such a way that employable individuals have incentives
to accept employment which ends their dependence on benefits. The better the opportunities
are to supplement one’s income, the less motivation there is to work. On the other hand,
a gradual transition into regular employment is preferable to remaining unemployed or to
state-subsidized employment. This led to the introduction of the new program of “mini-jobs”
on April 1, 2003.
•
•
27
Older unemployed people have been forced into unemployment
far too often via “social plans” prior to retirement.
To end this disregard for individual skills and a willingness to work, the eligibility period
for benefits will the reduced. Companies must not be allowed to send older employees into
early retirement at the cost of “the insured”, i.e. employers and employees. Beyond stimulating
the participation of older workers in the working world, shortening the eligibility period
for benefits will result in considerable savings in the budget of the Federal Employment
Service. But it will also place additional strain on the federal budget. Moreover, it will also
make it possible in the medium-term to reduce contribution rates for employers and employees,
thus also creating additional stimuli for demand in the economy overall and more jobs.
•
Unemployment benefits are given to unemployed
individuals who were subject to compulsory insurance
contributions for a 360 period over the previous
three years. Unemployment benefits are social
insurance benefits paid by the Federal Employment
Service from contributions made to unemployment
insurance. This benefit is protected as
a legal claim. Unemployment benefits total 60 %
of the net flat rate income or, if the recipient has
a child, 67 %. The recipient receives benefits for
a minimum of six and a maximum of 32 months.
Secondary jobs may not be more than 15 hours
a week; an exempt amount of 20 % of the unemployment
benefit may be claimed for additional
earnings, a minimum of 165 EUR per month. The
remaining amount is offset against the unemployment
benefit. All jobs that match a person’s skillset
are considered reasonable as long as there are no
general or personal reasons that speak against it.
There is no special occupational guarantee (skills
protection) With respect to compensation, a gross
reduction in earnings of 20 % is considered reasonable
during the first three months of unemployment,
30 % between the fourth month and the six
month and, from the seventh month on, each job
where net compensation does not fall below the
amount of unemployment benefits. For people
without families, relocating to accept new employment
is considered reasonable no later than the
fourth month of unemployment. For others, a 2 1/2
hour commute to and from the workplace is considered
reasonable. If a reasonable job is refused,
unemployment benefits are discontinued for a certain
amount of time (and the individual potentially
receives social assistance during this time). Here,
the periods of ineligibility are flexible: for the first
offense, the individual is ineligible for three weeks,
for a repeat case, six weeks and for a renewed
offense 12 weeks. If work is refused again after this,
the entire claim can be forfeited. On January 1,
2003, the burden of proof was changed. From now
on, in cases under dispute, unemployed individuals
(no longer the job center) must prove that they
did not act contrary to the social insurance system,
did not become intentionally unemployed, nor did
they try to intentionally frustrate efforts to end
unemployment. Since July 1, 2003, employees are
obligated to register with the job center directly
after being dismissed. Those who register too late
can anticipate reductions in unemployment benefits:
7 EUR for an unemployment benefit up to 400
EUR, a reduction of 35 EUR for an unemployment
benefit up to 700 EUR and 50 EUR for an unemployment
benefit above 700 EUR. The maximum sanctions
are 30 per diem rates.
For the future Category I unemployment benefits,
the standard eligibility period will be reduced to
12 months as of February 2006 and to a maximum
of 18 months for employees 55 years and older.
Otherwise, all other conditions remain the same.
The System of Unemployment Benefits
28
II What are we doing?
The new benefit system created by merging unemployment assistance and social assistance
will benefit employable individuals who are either working or who are willing to work
more than those who are not.
Participation in the working world is a highly valued social good. Each individual who is
fit to work should have the opportunity to work in order to support himself. If the income
earned from working is insufficient, it will be supplemented accordingly by state assistance.
If he is not willing to work even though he has been offered employment, these benefits
will be reduced or completely eliminated. Personal effort and contribution will be demanded
of each person who is unemployed. Unemployment may no longer be accepted as a stroke
of fate that one must and can live with. It must be seen as a stage of the job search which
is kept as short as possible. To achieve this, not only do new support mechanisms have to
be implemented, but there must also be cuts in benefits once eligibility for unemployment
benefits has expired. This will increase people’s willingness to accept employment even if
this job does not meet or only partially meets expectations. This viewpoint must apply to all
employees, both young and old.
Not only will more be demanded of the jobless but, they will also be given better support
in the future: a single contact point and less bureaucracy, more intensive counseling services
and job placement, new approaches to reintegration as well as employee subsidies and
improved opportunities for additional earnings. The latter, as already mentioned, are particularly
important with respect to motivation. They are, however, not without problems due
to the indirect effect that they have: because the individual retains a larger amount for supplementary
earnings, the income limit for the benefit claim is driven upwards. Based on the
principle of equal treatment, not only would those whose income is more than the previous
social assistance threshold have to benefit, but also those whose income is less than the new,
higher threshold for expanded additional earnings. The result of this initiative is, therefore,
an expanding circle of benefit recipients and a growing financial burden for the government.
Because a large number of households have an income which is only slightly above
the level of need, tighter limits are set for the exempt amount.
•
•
Until 1985, the standard eligibility period was 12 months. In 1985, this was extended to 18 months for
those 49 years of age and older. This was followed by further modifications. The period of eligibility for
unemployed individuals up to 44 years of age was set at 12 months, up to 47 years of age, to 18 months,
up to 52 years of age, to 22 months, up to 57 years of age, to 26 months and for anyone older, up to
32 months. These are the maximum periods of eligibility. They can be shorter depending on the length
of time the individual was subject to compulsory insurance contributions in the last few years. This applies
accordingly for the new periods of eligibility.
In accordance with compulsory
insurance payments lasting
a minimum of:
12 months
18 months
24 months
30 months
36 months
Eligibility period for
unemployed people
under the age of 55
06 months
09 months
12 months
12 months
12 months
Eligibility period for
unemployed people
over the age of 55
06 months
09 months
12 months
15 months
18 months
There is a transition period of two years planned.
Eligibility Period for Unemployment Benefits
The new eligibility periods are:
29
Unemployment assistance and social assistance will be merged into a single benefit system
for employable individuals in need of assistance and their family members with whom
they share a household (partners and minors).
The increasing number of benefit recipients, the long average length of unemployment
(almost 30 months), and the associated cost pressure for the public sector have raised the
question of why unemployment and social assistance exist side-by-side. By bringing the two
systems together, employable individuals in need of assistance receive a uniform benefit and
standard access to counseling services, job placement and funding programs. The people
who stand to gain most from this reorganization are the long-term unemployed who are
difficult to place in jobs, such as those with few skills, excessive debt or health or psychological
problems as well as the unemployed who have little or no access to childcare. Helping
people in this category requires a requires a long-term process that includes counseling,
training and support provided by various institutions. By offering a one-stop shop in the job
center, this process is not only less demanding for those concerned but is also much more
goal-oriented.
The reform provides access to individualized integration services, frees up affected individuals
from having to make extra visits to various agencies, makes benefits more transparent
and reduces the administrative effort by requiring only a single application process and providing
an immediate benefit estimate. This would also eliminate the tendency of the Federal
Employment Service, the federal government and local municipalities to shift responsibility
which was a regular occurrence in the past. The total assistance package will be administered
by a case manager and a specially qualified team consisting of employees from job
centers and social assistance offices. The main focus will be the quickest possible integration
of the individual back into the working world. Case managers are to be responsible for no
more than 75 people. This will give them the ability to provide intensive counseling and
support services to those seeking work. Those who register as unemployed and in need of
assistance will have to expect that they must now contribute more time and energy to reintegration
efforts than before. Simultaneously receiving benefits and performing under-the-table
work will become less “profitable” due to a stricter interpretation of regulations regarding
the reasonableness of jobs and sanctions and improved financial incentives.
•
•
“Merging Category II unemployment benefits and social
assistance is a step in the right direction. Our goal must be
to bring together all of the social security systems of the
federal government. Wasn't this the original idea behind all
of these systems anyway? Basic security for all citizens.”
André Panné
from Berlin
30
II What are we doing?
The way that partner income and assets are calculated for unemployment assistance was
changed as of January 1, 2003 as the first step in merging unemployment assistance and
social assistance. In addition, the foundation for setting up the job centers as the central
contact point for all unemployed individuals was established. In a second step, the Category
II unemployment benefit will be created out of unemployment assistance and social assistance.
It will be a standard benefit aimed at employable people in need of assistance. It will
generally be put at the level of social assistance (see box page 32). Moreover, standardized
access to individual and flexible integration services will be restructured. These changes will
be implemented step-by-step starting January 1, 2004.
The reform is controversial with the social partners and academics.
While trade unions are speaking out resolutely against reducing benefits because they fear
an intensification of the high risk of poverty for many unemployed people, the employer
associations are demanding steeper cuts. Academics are also demanding continued reforms.
In particular, the ifo Institute for Economic Research, the German Council of Economic
Experts and our Academic Council have voted to place the new benefit at a lower level than
social assistance and, in return, expand opportunities for additional earnings. Even though
this would alleviate the financial problems identified above by offering improved conditions
for additional earnings, under constitutional law, financial assistance for unemployed individuals
fit to work cannot be reduced below the socio-economic subsistence minimum without
certain prerequisites being fulfilled: the opportunity to work must be guaranteed and the
total income at least equivalent to social assistance benefits.
The German Council of Economic Experts proposes reducing assistance benefits to 70 %;
the ifo Institute is a proponent, just like the Academic Council, of steeper cuts in some form.
This would require government job guarantees and a corresponding supply of jobs. Here, the
traditional secondary labor market which includes job creation measures, employment agencies
and similar initiatives, always came under fire by academics. In this particular area, they
find themselves in a dilemma. Their hope, therefore, is that if assistance is drastically reduced,
unemployed individuals who are both fit to work and in need of support are prepared
to accept lower paying jobs in the private economy. And, that the collective bargaining parties
are willing to negotiate lower wages for simpler tasks that are currently either performed
on a small-scale or not at all because wages are too high. If individuals performing lower
paid tasks combine their wages with the generous provision for additional earnings and state
wage supplements, they will be able to support themselves. Corresponding employment
opportunities are particularly anticipated in the service area. This type of increase in the
number of regular jobs including those for lower-skilled workers who are difficult to place
in jobs is certainly desirable. But to force this increase is not without problems. The social
costs would be considerable as reducing benefits would directly and radically affect the living
conditions of many people. In contrast, the opportunities for additional earnings on the
•
•
•
Necessary Reforms to Unemployment Assistance and Social Assistance
• Funded by: Federal Employment Service
• Financed from federal funds
• Amount based upon previous income
• Individual benefit
• Need
• Unemployment despite ability to work
Different systems for people
with similar problems:
• Funded by: Local municipalities
• Financed from local funds
• Amount based on need
• Benefit “for the family”
Unemployment Assistance Social Assistance
31
primary labor market are uncertain. And, there is a risk that a permanent, publicly-subsidized
sector will emerge in the private economy in part due to high fluctuations in the area
of lower paid work. And, ensuring that each person without a regular job has a job in the
public sector is not only administratively demanding but it is also expensive: in addition to
wage supplement payments, there are costs for planning, administration and materials.
However, if the affected person – without any accumulation of debt – is not hired either on
the primary or on the secondary labor market, drastically reducing social assistance rates
would not only go against social principles but would also be unconstitutional.
The economic researcher, Klaus F. Zimmermann, president of the German Institute for
Economic Research in Berlin, sees this proposal somewhat skeptically: “if these adjustment
mechanisms fail, the unemployment rate in Germany will supposedly increase significantly.
On the other hand, creating a large, public employment sector is counterproductive, if even
feasible.” He personally proposes “workfare” as a solution: “strengthen incentives by only
granting the socially-acceptable minimum income (unchanged) based on the principle of
give-and-take unless an individual is not fit to work.” In concrete terms, the core of this proposal
is that each benefit recipient who is fit to work must accept a socially useful, public
job. The intended goal of this approach: if the unemployed individual knows that his time
is no longer freely available to him, he will also accept jobs in the regular labor market.
State assistance would then only be used should compensation fall below the social assistance
level. This proposal is basically the same as the concept of Category II unemployment benefits
but it has more provisions in the area of job placement and integration. None of this is,
however, new: In his speech held in 1884 on “The Right to Work”, Julius Ofner referred to
the fact that this regulation was already anchored in the principles of German state law in
the 16th century: “They all make a distinction between poor people who are fit to work and
those who are not and contained the provision that the latter should be provided for and the
former given work paid for by public funds.”
•
32
II What are we doing?
Unemployment assistance, in its current form, has been granted to unemployed individuals
requiring support once their eligibility for employment benefits expires. It is paid out by the
job centers but financed from federal tax money. Unemployment assistance amounts to 53 %
of an individual's most recent net compensation or, if the recipient has a child, to 57 %.
There is essentially no time limit for receiving unemployment assistance. It is, however, only
approved for one year at a time and then the individual's eligibility is rereviewed and then
usually slightly reduced. The same conditions apply for additional earnings as for unemployment
benefits as well as the consequences for rejecting reasonable work. Since the beginning
of 2003, unemployment assistance recipients have to rely more heavily on savings or the income
and assets of their partners. Personal, usable assets and those of one's partner are only
exempt from being offset against unemployment assistance in the amount of 200 € for each
year of age (previously: 520 €). The maximum limit is now 13,000 € (previously: 33,800 €).
For those over the age of 55, 520 € are exempt for each year of age, a maximum of 33,800 €
for single individuals and 67,600 € for couples. The exempt amounts for the partner’s income
were reduced by approximately 270 € per month (to around 500 €).
Social assistance has been granted up to now to, among others, unemployed individuals
in need of financial assistance who do not have any claim to unemployment benefits. Social
assistance is financed at the local level. It is based on need and provides financial support
for subsistence (fixed rates for different categories of dependents – for the head of the household,
e.g. around 292 €, any additional need supplements, costs for accommodation, onetime
allowance for clothes, furniture, etc.) as well as assistance for individuals with special
circumstances (those in need of care, the elderly, with illness or disability, etc.). Social assistance
guarantees each citizen the socially-acceptable subsistence minimum as long as the
individual is not gainfully employed or working and hence, cannot live from personal
income and assets or from third-party support. The social assistance recipient is eligible for
an exempt amount of 25 % of the standard rate for secondary jobs (around 73 €) as well as
15 % of any amount above this as well as 50 % of the standard rate (around 146 €).
The remainder is offset against the total social assistance. If reasonable employment is refused,
the individual’s rate can be reduced by 25 % and, if additional refusals take place, it can
be completely eliminated (support of other dependents remains unaffected by this).
In the future, unemployment assistance and social assistance for those in need of financial
assistance who are fit to work will be merged together to create Category II unemployment
assistance. It will be funded from taxes and paid out by the job centers of the employment
offices. The eligibility test with respect to assets will be based on the currently valid laws for
unemployment assistance. In addition, private old-age provisions by exempting a reasonable
amount of assets that are expressly used in old-age funds based on federal regulations. With
regard to personal income and that of one’s partner, the eligibility test is in line with social
assistance based on the applicable laws. This applies to the benefit amount which is usually
at the same level as social assistance. The benefit is based on the needs of the individual and
his or her dependents. It incorporates an allowance for subsistence, contributions to health
insurance and long-term care insurance and inclusion in state pension insurance and integration
services (case management, job placement, work and occupational integration measures,
social and psychological support). People who receive this benefit after receiving unemployment
benefits receive an allowance limited to two years that is gradually reduced. The previous
social assistance regulations that apply to exempt amounts for additional earnings continue
to apply; however, the previously valid maximum amount of 50 % of the standard rate
will be raised depending on the size of the household and supplemented by a family component.
Increasing it further could enlarge the circle of those receiving this benefit too much.
Instead, allowances should be granted on a case by case basis in accordance with § 18 Para.
5 of the Federal Act on Social Assistance. If integration measures or reasonable employment
are refused, this allowance is canceled and the standard rate reduced by 30 %. For young
people between the ages of 15 and 25, all financial benefits from the new system are canceled
in these types of cases. On the other hand, this meets the state obligation to offer each
young person who cannot find employment or a training position on the general labor
market, a job, traineeship or integration measure.
Unemployment
assistance
Social assistance
Category II
unemployment
assistance
Merging Unemployment Assistance and Social Assistance
33
Do the incentive structures of the social state have
to change?
Yes. The German social state provides alternatives to
wages in the form of social assistance, unemployment
assistance, unemployment benefits and various early
retirement models and creates competition by withdrawing
workers from the economy on the domestic
labor market. The wage replacement benefits are wellintended
because they alleviate unemployment. But
they also create unemployment itself by establishing
a minimum wage claim that the market economy is
able to meet only in the smallest number of cases.
If, instead, the government spends more money on
supplementing wages in the low-wage sector, then it is
no longer acting as a competitor to the economy and
can help those in need more effectively than is the case
today.
Do you place more emphasis on positive or negative
incentives in solving unemployment problems?
Both are required because there is no longer any
money available for social purposes. Reducing wage
replacement benefits, as is currently planned with the
elimination of unemployment assistance, will lower the
entitlement wages that are oriented to the market economy
and there will be more jobs at lower wages.
If the money saved is used to increase additional income,
the minimum wages will fall even further and
even more jobs will be created.
Does this mean that there will be a stronger
tendency towards a two-class society?
Actually, the opposite is true. Today, Germany is split
into those who hold jobs and the unemployed. This
means that there is unjustified degradation experienced
by many people who are willing to work and an
unforgivable and unfair disadvantage of children’s
growing up in families affected by unemployment.
Restructuring the social state so that it supplements
wages eliminates the two-class society and raises the
bar for what social policies can achieve because those
affected will earn more by combining self-earned low
wages with additional payments from the state which
will be considerably more than social assistance.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
In Germany, our biggest problem is one of recognition:
there are far too many totally unfounded assumptions
about the causes of our economic problems. Even
though I believe that the politicians are starting to
understand the true problems and that the general
public senses them, the so-called intellectuals do not
seem able to understand the significance of economic
correlations. They dismiss central economic perceptions
as neo-liberalism and then crawl back into their outdated
ivory towers. I see it as my job to contribute
to enlightening people and coming up with concrete
proposals for political reforms that will create a more
just and efficient social state.
“Germany today is divided into those
who have jobs and those who don’t.”
Prof. Dr. Dr. h.c.
Hans-Werner Sinn
University of Munich,
President of the ifo Institute
for Economic Research
in Munich
34
II What are we doing?
Temporary employment is a type of employment that increases the flexibility companies
have, thus enhancing the competitiveness of companies located in Germany.
Temporary employment agencies employ people to then hire them out for a specific
amount of time to companies. These agencies conclude work agreements with the temporary
workers and assume the role of employer with all the rights and responsibilities that come
with it. The temporary employment agency signs a temporary employment contract with the
user enterprise. This contract establishes the various activities to be undertaken, the number
of hours to be worked and the hourly rate of pay. The placement fee does not just contain
the direct compensation that the employee receives for this assignment, it also includes a
proportionate amount of the administrative costs of the temporary employment agency, e.g.
for continued payment of wages during vacation, in case of illness or when there are no temporary
contracts, for the personnel selection process, any training and payroll plus a profit
margin. Generally, this fee is more than the company would have to pay to hire its own
employee (on a limited contract) and the compensation for the temporary worker is lower
than what he or she would earn in a non-temporary employment agency. Why is temporary
employment then still a viable alternative for all those involved?
Temporary employment gives the user enterprise the ability to cover short-term personnel
needs, such as in cases of illness or vacation or during peak production times, both flexibly
and in line with scheduling needs. Employers have the opportunity to try out employees on
a trial basis at no risk. These employees can be hired in permanent positions in these enterprises,
usually for a placement fee. If the trial cooperation is not successful, the temporary
employee can often be “exchanged” free of charge during the first few hours. In some industries,
there is a trend toward project-specific temporary employment where traditional, unlimited
employment relationships are simply no longer of use. Some temporary employment
agencies have specialized in this area and offer temporary workers with specialized skills that
exactly fit project requirements.
Temporary employment can be beneficial for the temporary workers because the experience
gives them professional direction. The assignments in the user enterprises make it possible
for them to apply and be hired for permanent positions. Based on information provided
by the German Association of Temporary Employment Firms, around 30 % of all temporary
workers are hired on a permanent basis by the user enterprises. The reduction in wages for
temporary workers is very often overestimated. Based on studies from the DIW, this figure
is only approximately 20 %. Income differences for more highly-skilled temporary workers
can be smaller or non-existent. For employees without any professional training, compensation
is considerably below wages earned by the permanent workforce. Temporary employment
agencies employ a total of around 300,000 people of which half did not previously hold
jobs. Around one-third is placed in the metal working and electronics industry and approximately
one-quarter works in administration, offices and other services or as support staff. In
around 90 % of all employment cases, the length of the assignment in the user enterprise is
under six months and in over 60 %, under three months. There are approximately 4,000 temporary
employment agencies and 6,000 including their local offices.
We are using temporary employment
as a gateway to permanent employment
•
•
•
II 3
Temporary
employment
agency
User enterprise Temporary employee
Provides
temporary
employees
Pays agreedupon
wage
May give instructions
Pays
agreed-upon
compensation
Performs agreed-upon activity
Temp
contract*
Work
contract**
35
Provisions regarding temporary employment have
been eased several times in the past. As of January
1, 2002, the maximum duration for temporary
employment was extended from 12 months to
24 months as a result of the “Job-AQTIV” Act.
However, this law also requires that both compensation
as well as working conditions be created
that match those in the company where the temporary
worker was placed starting in the 13th month.
The First Act for Modern Services on the Labor
Market has lifted the following prohibitions:
• the special fixed-term contract prohibition
which restricts work contracts from being limited
again (unless there is an objective reason
provided by the temporary employee)
• the rehiring prohibition which prohibits dismissed
employees from being reemployed within
a three-month period after the working relation
ship has ended
• the synchronization prohibition which prohibits
the length of the work contract from being
the same as the duration of the first assignment
of the temporary worker in the user enterprise
• a 24-months restriction on temporary employment.
The principals of “equal pay” and “equal treatment”
were also given a firm legal basis. Based on
this principal, the temporary employment agency
must guarantee that their temporary workers have
the same the basic working conditions (including
compensation) that employees in comparable positions
in the user enterprise have starting on the
1st day of placement. The aim here is to prevent
the core workforce from being reduced due to
temporary employment prohibitions being lifted.
The social partners have, however, been given the
right to negotiate regulations that deviate from
this principal via the collective agreements.
The new provisions will become effective as of
January 1, 2004. This will represent a fundamental
change to the framework conditions for temporary
employment in Germany.
Despite the fact that this special fixed-term contract
prohibition has been lifted, temporary workers
cannot, however, be hired for a limited time
period in an unre-stricted fashion. They must comply
with the part-time and fixed-term contract act.
In accordance with this, time limits where no objective
reasons are provided can only be negotiated
for up to two years and be extended three times
within this timeframe.
More Flexibility in Temporary Employment
* Temporary employment contract
between the temporary employment
agency and the user enterprise
** Work contract
between the temporary employment
agency and the temporary employee
36
II What are we doing?
The establishment of Personal Service Agencies (PSAs) will create a whole new type of subsidized,
placement-oriented temporary employment.
The PSAs employ the jobless and give them support in finding permanent employment
outside of the PSA. To achieve this goal, they hire out their employees to companies and, in
times when there are no assignments, give them training. The main objective is not, as with
other temporary employment agencies, to repeatedly hire out an individual to different companies
but to place the individual in a permanent job in the primary labor market as quickly
as possible. In the lingo of the trade, this is known as “temp to perm” or, the seamless transition
from temporary to permanent employment. Around 1 % of unemployed individuals are
to be supported by the PSAs (see box).
Temporary employment is a type of employment that requires a willingness to be mobile
and the ability to integrate and have disciplined work habits. As a result, not every person
who is looking for work has a suitable skillset. For those who meet these requirements,
placement-oriented, temporary employment can become the gateway to permanent employment.
A positive example of this approach can be seen in START initiative in North Rhine
Westphalia and the Advanced Vocational Training Center of Bavarian Business and Industry
(bfz) who successfully reintegrated around 50 % of their temporary workers, many of whom
were difficult to place, into the primary labor market.
The target group of the PSA includes unemployed
individuals who are, aside from any individual
placement obstacles, fit to work and would be
considered for temporary employment based on
their skillset. PSAs will be established in each
employment office district broken down into
categories of, for example, technical (commercial),
business, academics or unskilled workers. For each
of these categories, the employment offices or job
centers select different types of skills, usually between
30 and 50 unemployed people. The standard
regulations on reasonableness apply to PSA employment.
To set up PSAs, the job centers are to give
priority to awarding contracts to private temporary
employment agencies and only set up PSAs under
their own direction as the exception to the rule.
The PSA contract is advertised for a two-year period
and the bid with the most favorable conditions is
awarded the contract.
Decisive factors are, first and foremost, a low quoted
price and, to use the language of the PSA call
for bids, a low base figure, as it is calculated as an
allowance by the companies depending on the
description of the “category” and the specific
situation on the regional labor market. As a fee,
the agencies receive a case-based flat-rate that is
reduced from 100 % of the quoted base price
during the first three months of the PSA employment
to 75 % for the fourth through the sixth
month and to 50 % for the seventh through the
ninth month and then expires. If the PSA employee
is hired on a permanent basis, the agency receives
an integration premium of 200 % for the first three
months, of 150 % for the fourth through the six
months and of 100 % of the base fee after the six
months. The PSA has no claim to additional funding
from the job centers. It must defray its costs largely
from placement fees for the PSA employees that
the user enterprises must pay here as with other
temporary employment agencies. Employment in
the PSA is limited to nine months. If a PSA employee
is placed in job, his or her slot is refilled with
another unemployed individual.
The Concept of Personal Service Agencies (PSA)
•
•
37
“I became unemployed at the age of 55. First, I had a limited
contract, then three months without work, followed by a
year of temporary employment. I wrote so many applications
during this time and finally got an unlimited contract.
Today I can say: Never give up!!!”
Karin Seela
from Wattenscheid
•
•
•
The same temporary unemployment laws regulate the PSAs as all other temporary employment
agencies. The PSAs are set up primarily by existing temporary employment agencies
who are awarded the contract in a public bidding process. This bidding procedure ensures
that public funds are used efficiently. The PSA receives a fee negotiated between the job center
and the bidder consisting of a monthly, case-based flat-rate and a premium paid when
the candidate has been successfully integrated or placed in a job. Because the PSAs focus on
specific groups of people who are difficult to place in jobs and because the goal of placement
is to find permanent employment within the user enterprises, it to pay a fee to the PSA
is justified. PSAs do not receive any additional incentives such as reintegration allowances.
The declining fee scale provides a strong incentive to place individuals in jobs quickly.
The PSAs are to finance themselves not only through these fees but also from income from
hiring out temporary workers. The contract signed between the job center and the bidder
pertaining to set up of a PSA does not contain any specifications about prices that the PSA
can charge for hiring out their employees to third-parties. It is therefore up to each PSA to
determine the best possible conditions at which they can hire out their temporary workers
in competition with other PSAs and temporary employment agencies. It is possible that the
rates charged by the PSA will have an adverse effect on commercial temporary employment
agencies in certain segments. However, the goal of the PSA is to integrate temporary workers
into permanent positions at the user enterprises which is different than the goal of other
commercial temporary employment agencies. In addition, their target groups don’t really
overlap: commercial temporary employment agencies hardly ever deal with either those who
are difficult to place or the long-term unemployed while these are the target groups of the
PSA. But not everyone sees it this way: the president of the Confederation of German Employers
Associations even promised in a public wager that, should there be higher employment
in the commercial sector than in state-subsidized tem-porary positions as of December
31, 2004, he would apologize for his reservations about the PSA approach.
Through collective agreements the principle of equal treatment is not mandatory.
To ensure that the more flexible framework conditions for temporary employment do not
lead to the elimination of permanent positions, as of January 1, 2004, temporary employment
agencies are obligated to ensure that their employees have the same working conditions
as employees in comparable positions in the user enterprise. The principle of equal
treatment does not apply across the board. Temporary employment agencies can circumvent
the higher costs and the additional bureaucracy associated with adjusting working conditions
for every assignment at different user enterprises if they apply a collective agreement.
The guideline proposal on temporary employment at the European level also supports with
this ruling.
38
II What are we doing?
Until last year, there was no collective agreement that applied to all temporary employment
segments. There were only a few company-specific collective agreements. As of May
of this year, there were two nationwide collective agreements for temporary workers between
the Confederation of German Employers Associations (BZA) and the German Federation of
Trade Unions (DGB) as well as between the German Association of Temporary Employment
Firms (iGZ) and the DGB. Moreover, on Feb. 24, 2003 a cross-sector agreement was signed
between the Christian Trade Union Bargaining Alliance for Temporary Employment and PSA
(CGZP) and the Association of Northern Bavarian Temporary Employment Agencies e.V. (INZ)
which came into force on March 1, 2003 (see box). The Institute for Small Business Research
(MVZ) also signed a cross-sector agreement with the CGZP. All of the legislation has included
the requests of the temporary employment sector for the type of flexibility offered by
“accounts” for working hours that are based on an average 35 hour week for full-time
employees. The actual weekly or monthly time spent working is based on the working hours
set in the user enterprise. The temporary employee can either use the hours accumulated
in this account as free time or, as stated in the agreement between the INZ and the CGZP,
receive financial compensation after 71 hours. The employer has a partial disposition right
in this area when there are no temporary contracts available.
Integrating temporary employment into collective bargaining structures makes it possible
to restore the tarnished reputation that temporary employment has as a result of the improper
hiring practices of some.
The collective wage agreements between BZA and
DGB provide for 9 compensation levels with hourly
wages between 6.85 € (West) and 5.93 € (East)
for unskilled workers and 15.50 € (West) and
13.41 (East) for academics. Starting in 2004, a
wage level of 86.5% will apply in the former Eastern
section which will increase to 91.5 % by 2006.
For an uninterrupted assignment in the same
user enterprise, there is an additional 2 % after
3 months, 3.5 % after 6 months, 5.0 % and 7.5 %
after 12 months. As of 2005, base wages will
increase annually by 2.5 %. The collective wage
agreements will be effective from 2004 to the
end of 2007. The collective bargaining parties are
obligated to agree on industry-specific allowances
no later than October 1, 2004.
The collective agreement between iGZ and DGB
contains similar stipulations. The wage levels in the
West for Level 1 range from 6.85 € up to 15.43 €
in Level 9. Once the employment relationship has
lasted 12 months, compensation in the respective
entry levels increases by 3% and after 24 months,
it is increased by an additional 3.5 %. The wages for
temporary employees who are hired out to companies
in the former Eastern section are 13.5 % lower,
a figure that will be reduced to a minimum of 8.5 %
by the end of 2006. Industry-specific allowances
are not planned. The collective wage agreements
with iGZ begins on January 1, 2004 and cannot be
canceled before December 31, 2004.
The collective wage agreements between the
Christian Trade Union Bargaining Alliance for
Temporary Employment and PSA (CGZP) and the
Association of Northern Bavarian Temporary
Employment Agencies e.V. (INZ) also foresee nine
compensation groups.
In Compensation Group 1 for employees without
professional pre-training for which a referral is
required, a base wage (when no temporary contracts
are available) applies of. 6.30 € (West) and
5.79 € (East) as well as a productive wage during
active assignments of 6.70 € (West) and 6.29 €
(East) starting March 1, 2003.
In the highest compensation category of 9 (complex
and difficult tasks, specialized professionals
with a relevant degree from an institute of higher
learning), the base wage is 15.30 € (West) and
12.20 € (East). The collective wage agreements in
the East and West can be canceled no earlier than
June 30, 2004 with a three-month notice period.
Collective Agreements for Temporary Employment
•
•
39
“Temporary employment
is an attractive mechanism
for companies.”
Günther Fleig
Human Resources and
Labor Relations Director,
DaimlerChrysler AG
What are the advantages that temporary employment
offers your company?
Temporary employment is an attractive way to cover
short-term employment needs, for example, for fluctuations
in production or for skills that are only required
on a temporary basis. Temporary employment makes
it possible for companies to put people to work more
quickly and at an earlier stage, particularly during phases
we can’t predict whether the number of contracts
will remain steady. With temporary employment,
workers can be absorbed more quickly into the labor
market. Several cornerstones of a industry-specific
collective agreement have already been established.
Temporary employment must be economically attractive
for the companies. I hope that our negotiating partners
will approach this practically and give temporary
employment a chance and support demand for temporary
employment by creating the necessary conditions
for temporary employment.
How high is the current percentage of temporary
employees and what is the target figure?
In the production and production-related divisions, we
currently have around 330 temporary employees as
well as several hundred in administrative and specialized
functions. Consequently, today’s figures do not
represent a significant portion of temporary workers.
Rather, our focus is to expand our portfolio of flexible
mechanisms through temporary employment: we must
become more flexible so that we can meet requirements.
We're currently reviewing other ways of working
with temporary employees. This process also includes
the discussions we are seeking out with our works
councils to transfer the understanding we have already
reached about labor market policy to operations.
Will you also hire PSA employees?
This will depend on the experience that we have with
the PSA organizations. Up to now, we have had none.
We will review the possibility of constructive hirings
via the PSA organizations. Two factors are particularly
important for me: on the one hand, working with PSA
employees as traditional, temporary workers to cover
temporary bottlenecks and, on the other hand, hiring
PSA employees at DaimlerChrysler AG. Whether or not
PSA employees will be hired by DaimlerChrysler AG
depends on their skillset. Consequently, each person
we hire will be an individual decision regardless of how
hiring occurs.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
DaimlerChrysler is showing its active commitment to
its German sites. Over the last five years alone, we have
created approximately 20,000 domestic jobs in the
automobile industry. You can see from the example
of our efforts in Kölleda, where we are building a new
automotive factory together with Mitsubishi, that
Germany has potential in the future for us as a business
location. For years now, we have been offering training
at a very high level and will hire around 2,800 trainees
in 2003 just as we have in previous years. This is more
than an acknowledgment of our commitment to professional
training but also part of DaimlerChrysler’s social
responsibility.
40
II What are we doing?
Business start-ups and young, medium-sized businesses drive the innovation process
forward and create future-oriented jobs and training opportunities.
Studies have shown: in the last few decades, large companies have tended to eliminate
jobs. This loss of jobs has been partially offset by small companies.
The recent Global Entrepreneurship Monitor 2002 shows that countries with high rates of
new business start-ups are suffering less from the current low rate of growth than countries
with few new businesses. For it is the case that business start-ups force structural change
within an economy, transforming it from one that is industry-based to a communication
and services-oriented economy. However, the general population has strong reservations
about self-employment. When considering the trade-off between working independently
and high personal risk and struggle, the result is often that people shy away from all the
effort required and decide instead to pursue permanent employment as a supposedly easier
alternative. Just under half of those surveyed were afraid of failure. Germany lacks an entrepreneurial
mentality. Consequently, not only are students being taught to think independently
at high schools and institutes of higher learning, but they're also learning how to act in
a financially independent way. And, there is a wide range of support programs designed to
help people during each step of starting up and managing a company.
For questions about funding and financing programs, a hotline has been set up at the
number 01888-6158000 as well as a database of funding programs at www.bmwa.bund.de
We are building bridges to self-employment
•
•
•
Permanent employment over self-employment!
Why more Germans do not become self-employed
Representative survey of 5,000 people over the age of 14 in Germany.
Of 100 people surveyed, the reasons were:
II 4
Source:
British American
Tobacco/Institute
for Leisure Research
2002
www.bat.de
91
88
83
• Permanent jobs offer more financial security
• Too much risk; too many bankruptcies
• Not as much strain put on permanent employees
• Associated with less free time and vacation
• Private life suffers
82
79
41
The “small business act” has further improved start-up conditions
for start-up entrepreneurs and small companies.
The revenue limit up to which a company is exempt from value-added tax has been raised
to 17,500 € for these groups.
The amendment to the Crafts Code introduced by the parliamentary parties will also make
business start-ups much easier in the future. It will no longer be necessary to have a mastercraftsman
examination for “simple” activities. Moreover, this master-craftsman examination
will be limited to “potentially dangerous professions” which can pose health hazards or be
potentially fatal for third-parties (electricians, opticians, etc.). In other manual trades, the
master-craftsman examination is an optional symbol of quality and can be used by the company
as a marketing tool. In addition, trade laborers with a minimum of 10 years of professional
experience, 5 of them being in a management position, can become self-employed
without having to take any additional examinations. And, the outdated ‘owner principle’
which requires the company owner to have the master-craftsman qualification, will be completely
eliminated; it will now generally be sufficient (and not just for companies limited by
shares) for the company to hire a master-craftsman. Young start-up entrepreneurs will be
exempt in the future during the first four years from contributions to the Chamber of
Commerce and Trade as well as the chamber of crafts as long as the annual profits do not
exceed 25,000 €. Companies will be entered more quickly into the Commercial Register,
thus reducing the costs associated with registration. The self-employed will have more security
from the social system. They do not have an exemption from attachment comparable
to what employees have: should the company go bankrupt, they often lose all collateral,
frequently without going into personal debt. They would then be dependent on transfer
payments (social assistance, basic social security protection). This is why they will also receive
a corresponding exemption from attachment in the future.
•
•
“I took over a photo shop. Of course, I needed to make some
investment. Without the start-up business allowance, it wouldn't
have been possible. The job center processed the application
quickly and within a week, it was through.”
Hildegard Greiner
from Grafenau
42
II What are we doing?
More and more new businesses are started by the jobless.
Last year, 123,000 unemployed individuals used “a transition allowance” to form their own
businesses. These funds are paid for a six-month period, on average around 1,600 € per
month. These individuals represent approximately one-quarter of all start-up entrepreneurs.
According to a study published by the Institute for Employment Research (IAB), 70 percent
of those receiving a transition allowance were still in business after three years and had, on
average, one employee.
Since the beginning of 2003, “Me, Inc.”, an allowance given to unemployed individuals
who want to form their own businesses, offers an alternative to the transition allowance.
The Me, Inc. program is running on a trial basis until the end of 2005. The aim of the new
business start-up allowance for small businesses is, in particular, to encourage the formation
of businesses that meet demands for affordable services. During the first five months of this
year, 25,000 unemployed individuals took advantage of this new program; around 65,000
unemployed individuals who wanted to form new businesses chose a transition allowance.
Over the course of the entire year, approximately 200,000 new companies were formed by
unemployed individuals.
•
•
1986 ’87 ’88 ’99 ’90 ’91 ’92 ’93’94 ’95 ’96 ’97 ’98 ’99 2000 ’01 ’02
600,000
500,000
400,000
300,000
200,000
100,000
0
Source:
Institute for Small
Business Research
Business start-ups formed by the jobless compared to total new business start-ups
• Transition allows recipients
• Business start-ups
43
Target group
Additional
prerequisites for
funding
Period of eligibility
Amount of funding
Social insurance contributions
Taxes
Claim in case of
recurring unemployment
Pseudo-self employment
Two ways to move from unemployment to self-employment
Start-up business allowance – Me, Inc. Transition allowance
Unemployment benefit recipients, those working in
job-creation measures (ABM) and structural adjustment
measures (SAM)
Application must be submitted before the period of selfemployment
begins, income (profit) may not be estimated
to reach more than 25,000 EUR per year, no business plan is
required but these are useful, application must be submitted
annually
Maximum of three years; approval time frame of 12 months
respectively
• 600 € per month (1st year of funding)
• 360 € (2nd year)
• 240 € (3rd year) If the income limit is exceeded during the
approval year, the start-up business allowance is discontinued
for the future; no repayment of granted funding required
Required to make contributions to the statu-tory pension fund
while receiving the start-up business allowance: monthly contributions
of approximately 230 € in the West and 195 € in
the East (less if proof is provided of a below-average income,
mini-mum 78 €). Optional membership in the statutory health
insurance and long-term care insurance system with favorable
minimum contributions (monthly health insurance payment
of 170 €, monthly long-term care insurance contributions
approximately 20 €) if earnings are low.
Allowances are tax-free,
no progression adjustment
Right to unemployment benefits for maximum of four years
after this claim goes into effect, for unemployment assistance,
a maximum of three years after the last day money was received;
new claims do not emerge during the period of selfunemployment.
If the “Me, Inc.” owner has only a single customer, they can
assume that, should the Federal Insurance Institution for
Salaried Employees (BfA) check, the subcontractor will not
be categorized as a permanent employee and that the respective
insurance contributions must be repaid (legal presumption
of self-unemployment as long as the start-up
business allowance is being received).
Unemployment benefit recipients, those working in ABM or
SAM, employees at risk of unemployment who have a right to
unemployment benefits
Application must be submitted before the period of selfemployment
begins; an agency with expertise in the respective
area must provide their assessment of the feasibility of
the business (business plan)
Six months
Payments in the amount of the most recently or potentially
received unemployment benefits or unemployment assistance,
plus the associated social insurance contributions
(flat-rate 68.5 %)
Only required to contribute in part to statutory pension fund;
for self-unemployed individuals who have a status similar to
an employee, it is possible to apply for exemption from this
requirement during the first three years. Contributions (only
for those required to make payments): during the first three
years 230 € in the West, 195 € in the East. Optional member
ship in the statutory health insurance and long-term care
insurance systems: monthly health care contribution 250 –
483 €, long-term care contribution approximately 20 €.
Allowances are tax-free,
no progression adjustment
Right to unemployment benefits for maximum of four years
after this claim goes into effect, for unemployment assistance,
a maximum of three years after the last day money was received;
new claims do not emerge during the period of selfunemployment.
Recipients of the transition allowance must be self-unemployed.
To be sure of the social insurance status and determine
whether the individual is subject to compulsory insurance
contributions to the statutory pension fund, contact the
BfA.
44
II What are we doing?
The intention of the Me, Inc. start-up business allowance is to help unemployed individuals
who want to start a company get through the first, difficult phase of self-employment and
pay social contributions. This type of funding is only granted as an alternative to and not in
addition to the transition allowance. Which type of funding is more beneficial for the startup
entrepreneur depends on the amount of funding, the required social contribution payments
and the income expectations. Me, Inc. is particularly suited to start-up entrepreneurs
who are not eligible for much unemployment money but whose social insurance contributions
would be hire. This group includes low-skilled workers with low income as well as those
who were employed in part-time jobs before becoming unemployed. In cases like these, Me,
Inc. can be even more beneficial if funding is received for a two-year period only. If income
arising from self-employment activities is expected to exceed 25,000 EUR during the first
year, the transition allowance is often the better alternative.
The “small business act” and Me, Inc. have given start-up entrepreneurs and small business
owners more favorable framework conditions: financial support and new professional options
in manual trades. As a result, they can offer their services on the market at better conditions
and compete with existing companies in certain market segments. It is also expected that
these programs will encourage the “self-employed” on the black market to return to the
legitimate labor market. Because the social insurance contributions are offset by the start-up
business allowance, people are able to make a “phased transition” out of the informal economy.
This notion is particularly appealing for those active in the informal economy “at their
own personal cost” to supplement the state social benefits they are receiving. Otherwise,
they have to expect that, purely from a time standpoint, they no longer have time to perform
this activity due to intensive counseling and work assigned by the case manager in the job
center and instead are assigned, for example, employment at a non-profit organization. For
Me, Inc, the following professions are examples of suitable activities: hauler, hair stylist,
snack shop operator, cosmetician, educator, in-surance agent, property broker.
Empirical studies and international experiences indicate a potential start-up business rate
of 3 – 5 % among the jobless. If this figure could be confirmed in Germany, it would make
a significant contribution to reducing unemployment. But we have to be realistic: those who
become self-employed because they have no other alternatives with the attitude: “I am just
going to give this a try”, will have a difficult time from the very beginning. If the individual
lacks the desire and will to be an entrepreneur, not much will happen without solid preparation.
Even if a business plan is not required to form a Me, Inc. business, the founder should
acquire the necessary business knowledge no later than during the first year of business so
as not to get lost in the labyrinth of regulations and bookkeeping requirements after a promising
start. Yes, the term “Me, Inc” was voted the most ill-chosen word of the year in 2002
on the grounds that it “reduces human fate to the linguistic level of the stock market”. But
still, the economically-educated reader might recognize the potential for opportunity offered
by these single-person businesses.
•
•
•
45
What is your assessment of the increasing numbers
of new businesses that are being formed by unemployed
individuals?
This trend makes me hopeful because it shows that the
fear of failure does not control all of our actions here in
Germany but rather that there are people with a lot of
courage who are willing to take the bull by the horns.
This is even more significant because Germany was
rated so poorly in the international comparison of the
Global Entrepre-neurship Monitor particularly in the
area of the social values and standards. The entrepreneurial
spirit that is transferred to society as a result of
these new business start-ups will certainly have a positive
influence on German attitudes in the long-run.
Seen against this backdrop, support programs such as
Me, Inc. or the mini-loan made available by the
German Ausgleichsbank are extremely positive because
they lower the personal risk associated with new business
start-ups and make it possible to achieve positive
business results.
What are the different ways that a Me, Inc. business
can finance itself?
The mini-loan makes it much easier to form small businesses,
even if the business is not the primary source of
income as in the case of the Me, Inc.. The obstacles for
those who want to start their own businesses and have
a good credit rating are much lower because conditions
are more favorable, the application is processed more
quickly, the decision-making process is streamlined and
there is a partial dispensation of collateral. Creditworthiness
is not just a result of careful planning for
the start-up business plan but shows the strength of the
start-up entrepreneur’s commitment.
Which entrepreneurs, men or women are more
willing to take risks and which are more successful?
Even though there are a lot of German studies that
show at first glance that businesses started by women
have lower revenues, grow more slowly and create
fewer jobs than businesses formed by men, the reason
is that women, on average, do not have as many resources
available to them and are often active in lowgrowth
industries. If these conditions are taken into
account, there is no difference in the outlook for success.
The Hartz report has called on all "Professionals in
our country" to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
The Global Entrepreneurship Monitor mentioned above
gave Germany poor marks in the area of training for
business start-ups particularly in schools but also at
universities. This is the starting point for the broadlybased,
start-up training program offered by the
Technical University in Munich. Hands-on training is
provided through a number of events with representatives
of the entrepreneurship scene, interdisciplinary
industrial projects and the application of the case study
teaching methods. We work, for example, within the
framework of a project with students and staff members
of the faculty for economic sciences, computer
sciences and medicines in a spinoff from the university.
“The entrepreneurial spirit will
certainly have a positive influence
on German attitudes in the long-run.”
Prof. Dr. Dr. Ann-Kristin Achleitner
DtA Chair in Entrepreneurial Finance,
Technical University Munich
46
II What are we doing?
Reintegrating the jobless into the labor market is being supported
by a number of measures.
Without work promotion assistance, it would only be possible for a limited number of unemployed
people to take on jobs. “Integration allowances” are paid to directly support measures
designed to reintegrate the unemployed into regular jobs. They offer employers incentives
to hire employees who initially do not perform at the same level as other employees
and therefore, have limited opportunities on the labor market. Between 1998 and 2002,
approximately 700,000 employees were subsidized for a total of 4.8 billion €. In addition, the
Federal Employment Service paid integration allowances for severely disabled individuals
amounting to around 400 million €. Around half of this amount was financed with compensatory
levy funds in accordance with the Severely Disabled Persons Act. Integration prospects
for the unemployed were indirectly improved by means of training measures which give both
employees and employers the opportunity to work together on a trial basis.
Job creation measures (ABM) and structural adjustment measures (SAM) provide limited
employment for employees requiring support in the secondary, state-subsidized labor market.
Instead of unemployment being funded, employment in the public interest is financed. Job
creation measures combine paid work with training measures or internships. The primary
aim of structural adjustment measures is to create a foundation for new jobs in areas where
structures have been disrupted. Measures eligible for funding include those that benefit the
environment and the infrastructure. Both of these measures have come under heavy fire
during the last few years. The main criticism is that only small numbers of those participating
in these measures are actively integrated into regular employment once the measure
has ended. Proponents counter that both job creation measures and structural adjustment
measures have functioned as socio-political tools, contributing significantly to creating new
employment opportunities during periods of insufficient demand and to enhancing individual
employment skills. In addition, they improve the economic infrastructure and strengthen
demand by increasing regional income. There is a big price tag on these achievements:
last year alone, 3.1 billion € were spent.
For years now, state-subsidized employment has been on the decline while allowances for
integration and new business start-ups have been intensified. In line with international experience,
more and more stock is being put into shorter, more company-specific measures.
Discretionary assistance has contributed to this effort: with up to 10 % of the funds contained
in the integration budget, job centers can use their discretion to develop services for occupational
integration independently of existing support mechanisms and adjust these tools for
use in specific regions.
We are supporting reintegration
•
•
•
II 5
47
• up to 6 months
• up to 12 months
• up to 24 months
• up to 36 months
• up to 96 months in
exceptional cases
• 4-12 weeks
• up to 12 months
• 6 months
• up to 3 years
• Variable (in line with
public services)
• up to 12 months
• Temporary employment
possible up to
24 months
• up to 36 months if
employee is hired on
a permanent basis
• up to 36 months
• up to 48 months if
employee is hired on
a permanent basis
• up to 60 months for
measures with older
employees
Work promotion benefits upon acceptance of employment
Type of benefit Eligibility requirements Amount Duration Number of participants
Averages in 2002
11,960
41,940
56,472
19,507
61,950
10,406
54,305
(in force since
January 1, 2003)
62,899
124,709
67,422
Integration allowances
(§§ 217 ff. Social Code III)
• For integration
• For individuals who are difficult
to place
• For older unemployed individuals
Integration allowances for
the severely disabled
(§§ 222a ff. Social Code III)
Training measure
(§§ 48 ff. Social Code III)
Hiring allowances for
business start-ups
(§§ 225 ff. Social Code III)
Transition allowance
(§§ 57 ff. Social Code III)
Business start-up allowance
Me, Inc.
(§ 421 l Social Code III)
Discretionary assistance
(§§ 10 Social Code III)
Job creation measures
(§§ 260 ff. Social Code III)
Structural adjustment measure
(§§ 272 ff. Social Code III)
• Existing integration need
• Difficult to place in jobs
• At least 50 years of age, unemployed
for at least six months in
the last year
• Severely disabled employees or
their equivalent
• Unemployed or at risk of
unemployment
• Self-unemployed for no more
than two years
• Up to five employees
• Unlimited employment
• New position
• Employee received wage replacement
benefits for at least three
months
Prior to self-employment
• Receipt of wage replacement
benefits
• Eligible for wage replacement
benefits
• Employed in ABM/SAM
Positive assessment by an agency
with expertise in the relevant
area on the feasibility of the
start-up business
In close association with the start
of self-employment
• Receipt of wage replacement
benefits
• Employed in ABM/SAM
Income may not exceed 25,000
EUR annually
• Those seeking traineeships,
who are unemployed or at
risk of unemployment
• Programs must fulfill the objectives
and have the same foundation
as public services
• Employment of unemployed
indi-viduals in need of support
• Additional measure in the public
interest
• Priority given to measures in the
commercial sector
• Employment of individuals in
need of support (unemployed
or at risk of unemployment)
• Measures eligible for support
• Priority given to measures in
the commercial sector
• up to 30 %
• up to 50 %
• up to 50 %
• up to 70 % of the
compensation that
could be considered
for this work
• Continued payment
of unemployment
benefits/assistance
• up to 50 % allowance
for compensation
• For a maximum of
2 employees
Payment of unemployment
benefits/assistance
(including flatrate
social insurance
contribution)
• Staggered monthly
allowance
1st year: 600 €
2nd year: 360 €
3rd year: 240 €
• Individual support
• Project-based support
• Allowances for compensation
that could
be considered for this
work (30 %–75 %), up
to 100 % in exceptional
cases
• Flat-rate monthly
allowance of 1,075 €
for each assigned
employee
48
II What are we doing?
It will be easier for older unemployed individuals to re-enter the labor market.
The target group for compensation protection for older employees are unemployed individuals
over the age of 50 who still have a remaining claim to unemployment benefits for at
least 180 days. If these individuals accept employment subject to compulsory social insurance
contributions for which they receive lower net compensation than they did for their previous
job, they receive the difference between the new and the old net compensation, half of
which is offset by a tax and contribution-exempt allowance. Moreover, the job center increases
contributions to the pension scheme as shown in the example above. This allowance is
extended throughout the remainder of the original claim to unemployment benefits. This
creates an additional incentive for older unemployed individuals to accept employment as
quickly as possible.
Another incentive for employers to hire older workers is that they are not required to pay
employer contributions to unemployment insurance for those over the age of 55 (currently
3.25 % of the gross wage). Moreover, they can conclude limited work contracts with older
employees above the age of 52 without restrictions until the end of 2006. Combined with the
alternative of fixed-term contracts for which no objective reasons must be provided for new
hires (that can be negotiated for up to two years), employees can now be employed on temporary
contracts over a longer period of time as early as the age of 52. In this respect, protection
from dismissal may no longer represent an obstacle to hiring older individuals seeking
employment. These substantially improved framework conditions for employing older
workers in companies will also open up new opportunities for those who cannot expect to
receive unemployment benefits for the previously valid eligibility period of 32 months.
•
•
Example of How Compensation Protection is Calculated
Otto is 54 years old and unemployed. At his previous
job, he received a gross monthly income of
2,000 € which, after taxes and deductions for social
contributions, amounted to around 1,261 € net.
He has been unemployed for one year and still
has a claim to unemployment benefits for another
14 months. His unemployment benefits are 60 % of
his previous compensation which is around 757 €
per month. Otto accepts a new job where he earns
1400 € gross and 980 € net.
He is eligible for the following benefits:
® Allowance for net compensation:
The monthly difference between both net compensations
is 281 €. Half of this amount is paid to Otto,
i.e. as a monthly allowance of 140.50 € for a
14 month period. In total, he receives 1,120.50 €
net per month.
Additional contribution to the pension scheme:
The job center pays an additional contribution to
the pension scheme for Otto for the duration of
the compensation protection. Here, the difference
between 90 % of the old gross compensation
(2,000 € x 0.9 = 1,800 €) and the new gross compensation
(1,400 €), i.e. 400 € a month, is used as
the basis. The job center assumes the total contribution
rate for the pension scheme of 19.5 %,
adding to the employee’s pension scheme by an
additional amount of 78 € per month.
“The problem really is that companies would rather hire a
25-year-old who has fewer skills and less knowledge but who
asks for up to 50 percent less. This is also why so many good
people over the age of 40 can no longer be placed in sensible
jobs. The companies don't want them and the unemployed in
this age group are often not willing to "sell" themselves so far
below their value.”
Thorsten Schulenberg
from Bookholzberg
49
The Capital for Work program combines additional employment (subject to compulsory
social insurance contributions) with access to favorable financing options.
Companies are often prevented from creating new jobs because they do not have enough
equity or access to loans. This is the starting point for the Capital for Work program of the
Kreditanstalt für Wiederaufbau (KfW). It gives loans with favorable terms to commercial
companies and freelancers with annual revenues of up to 500 million € who hire unemployed
individuals or those who are at risk of unemployment, part-time workers or trainees.
The program is geared to companies that have already been on the market for some time
and have a financially stable foundation. These companies profit from the advantageous
inflow of capital and are still eligible for other funding to hire unemployed individuals.
All of these factors together create a relatively strong incentive to take advantage of this program.
The Kreditanstalt für Wiederaufbau believes that, if conditions are good, it is possible
that up to one billion € will be approved during the first year of the program. This would be
equivalent to additional employment for around 15,000 people. Until the end of May, loans
amounting to over 355 million € were granted by the KfW; from these loans, around 4,800
newly created to employment relationships were given funding.
•
•
A company that hires an unemployed individual for
a minimum of 12 months is eligible for a loan of up
to 100,000 €. These loans are issued via the company’s
bank. A good credit standing is required,
i.e. the company bank must be convinced that the
prospects for the proposed business are sound.
Because the financing terms are based on the credit
risk, companies with weaker credit ratings can
also obtain loans. The loan is issued as a financing
packet that consists of two inseparable components:
a traditional, bank loan funded by outside
capital for which collateral must be provided and a
loan with subordinate debt status that requires no
collateral and is based on personal capital. The
interest rates fluctuate at the lower end of the capital
market. The loan from outside capital has a twoyear
grace period and the subordinate loan has an
eight-year grace period. In cases of a poor credit
record, the extra charges for risk that are included
in the interest rate are paid into a fund from which
any credit defaults are compensated for. Measures
eligible for funding are replacement and expansion
investments, and investment for innovation and
accessing new markets. Debt rescheduling and
post-financing are not included. There is no maximum
limit for the loan for each company. The KfW
conducts discussions with the group of intermediate
banks about the program on a regular basis.
As a result of these discussions with the banks,
the program has been adjusted several times, for
example, it now includes company takeovers and
newly created traineeships.
Concept of the “Capital for Work” Program
The interest rates for the subordinate loan vary depending on the credit rating.
The outside capital loan is granted with standard interest rates and collateral.
Source: BMWA – Informationen aus Wirtschaft & Arbeit 1/2003
Capital for work – Shared risk
50,000 €
50,000 €
Kreditanstalt für
Wiederaufbau (KfW)
Medium-sized
companies Those seeking work
50,000 €
50,000 € Company bank
Outside capital loan
Loan with subordinate debt status
Credit rating assessment (4 credit rating categories)
Risk premium instead of collateral
Credit rating assessment*
Collateral
*Markup of up to half an interest point possible
50
II What are we doing?
Olga is 36 years old and provides household services
in a private household. She works around
two hours every weekday at an hourly rate of 8 €,
earning 400 € a month. This is her only mini-job,
she is not required to make any deductions and has
the entire amount at her disposal.
The head of the household pays a 12 % flat-rate
(48 €) and 1.3% for wage continuation insurance
(5.20 €) to the Federal Miners’ Insurance Institution
in Cottbus. The head of the household has total
costs of 453.20 €. 10 % of these costs are taxdeductible
up to a maximum of 42.50 € per month.
Practically speaking, he spends 410.70 € per month
for the work that Olga performs which is 10.70 €
more than for under-the-table work without any
wage continuation insurance.
Example of How a Mini-Job is Calculated for a Private Household
Providers are being commissioned to offer integration programs to integrate people
who are difficult to place more quickly.
These types of providers include professionally-operated associations, educational facilities
and structural development organizations. Targets established during the bidding process
serve to define the success of integration in concrete terms. The job center establishes the
target percentage by taking into account the target group to be integrated and the specific
situation on the regional labor market. Detailed stipulations used up to now to regulate
how resources are spent have been dispensed with. After a competitive process through
which the contract is awarded, the job center signs a contract with the provider whose
strategy and service offering our the most cost-effective. The provider receives a contractuallynegotiated
fee for these services. This fee can be partially based on successful reintegration.
Introducing these new types of labor market programs will intensify competition among
facilities that offer programs for actively promoting employment. The objective here is also
rapid job placement in the labor market. This program is currently set to run until 2005.
Mini-jobs create new employment opportunities in the service sector.
Traditional commercial activities for “mini-jobbers” exist, in particular, in the hotel and
restaurant industry, in newspaper distribution and in retail now that the opening times for
shops were recently extended. Mini-jobs will contribute to keeping the number of underthe-
table jobs low particularly in household-related services. These services include cooking,
cleaning, gardening as well as childcare and nursing services for the ill, the elderly and
others requiring care. As the example calculation shows, under-the-table work will hardly
be “worth it” anymore because there is only a small potential for savings but a higher risk
of penalty. Moreover, mini-jobs offer employers a flexible way to hire employees especially
during times when demand is weak and it seems too risky to hire a full-time employee.
•
•
51
After the previous experience with the 325 € jobs, many people, including housewives, retirees,
and students, will take advantage of this opportunity to earn additional income. For
full or part-time employees whose earnings are low, this is an appealing way to increase income
with a secondary job. The critics of this new regulation are afraid that the program will
be misused because regular full-time jobs will be split into several mini-jobs, a fear that must
be taken seriously. However, because doing this would require a lot of administrative work
and create organizational problems and gaps in the skillsets of the mini-jobbers, it is rather
unlikely that these abuses will occur.
Within the framework of the additional earning limits, the unemployed can only profit
from mini-jobs: based on current regulations, for earnings amounting to 400 €, only around
120 € is exempt for social assistance recipients and 20 % of the monthly earnings (a minimum
of, however, 165 €) is exempt for recipients of unemployment benefits and unemployment
assistance. The higher the unemployment benefits are, the more the recipient is
allowed to earn in additional income; if unemployment benefits are 2,000 €, the income
originating from the mini-job may be completely retained. For future recipients of the new
Category II, mini-jobs will also be considered reasonable employment so that they will get
people working again in stages.
According to preliminary estimates of Federal Miners’ Insurance Institution, 930,000
mini-jobs have emerged since the new regulation went into effect (as of the end of June).
Final figures on newly created mini-jobs will only be available from the results of the Federal
Miners’ Insurance Institution reporting procedure.
•
•
52
II What are we doing?
The Structure of Mini and Midi-Jobs
The mini-job program with its income of up to
400 € a month which was approved on April 1st of
this year, offers flexible employment opportunities
below the social insurance threshold. The employer
must pay a flat-rate of 25 % to social insurance.
The previous tax exemption with the bureaucratic
exemption process will be replaced by a flat-rate
tax to be paid by the employer. The total amount
will be paid to the new mini-job headquarters of
the Federal Miners’ Insurance Institution eliminating
the time-consuming communication with
the tax office and health insurance providers that
was previously necessary. Small businesses with up
to 30 employees pay an additional levy of 1.3 % for
wage continuation insurance. For low-earners
employed in private households up to the 400 €
limit, the flat-rate of the employer is only 12 %.
This amount is also tax deductible.
Regulations for part-time employment and the low-wage sector
• Exempt from social contributions if no other
income; possible to increase pension scheme
contribution to 19.5 %.
• Exempt from taxes if no other income; otherwise
via wage tax card or flat-rate income tax of 20 %
• Exempt from social contributions if no other
income; possible to increase pen-sion scheme
contribution to 19.5 %.
• Exempt from taxes, even if a secondary job
• Between 4 % and 21 % social insurance contribution
depending on income
• Taxes via wage tax card (in accordance with
personal tax rate)
• 10 % Statutory health insurance;
• 12 % Statutory pension scheme
• 11 % Statutory health
insurance;
• 12 % Statutory
pension scheme
• 2 % flat-rate tax
• 5 % Statutory health
insurance;
• 5 % Statutory pension
scheme
• 2 % flat-rate tax
• 10 % of expenditures,
max. 510 € is annually
tax-deductible
• 21 % social insurance
contribution (total
portion)
• 12 % of expenditures,
maximum of 2,400 €
is annually tax-deductible
Employee Employer
If the low-income ceiling of 400 € is exceeded,
there is now a flexible range up to 800 € in which
social insurance contributions are compulsory in
all industries. In this income segment, the social
insurance contribution for employees gradually
increases from 4 % up to 21 % which is the total
employee portion. This makes it possible to prevent
the employee from having a sudden jump in
expenses and also makes employment between
400 € and 800 € attractive. The employers in this
range already pay the total employer percentage
of around 21 %. Those whose earnings fall within
this range have health insurance and are also eligible
for pension benefits even if they are quite
low. For employment relationships in private households
where social insurance contributions are
compulsory, the additional amount that can be
potentially deducted from taxes owed is also being
raised. Several part-time jobs are added together.
If the 400 € limit is exceeded, social insurance contributions
are mandatory. In addition, primary jobs
subject to social insurance are added together with
part-time employment; here, a secondary job is
exempt up to 400 €.
Previous regulation: 325 € jobs
New midi-jobs (401 – 800 €)
New mini-jobs (up to 400 €) General In private house-holds
General In private house-holds
53
Which job promotion measures have proven to be
particularly successful?
Different impact analyses have yielded various results.
Results for publicly-subsidized employment are problematic.
If a control group consisting of non-participants
is created, as was done for an IAB study, you tend to
see the negative effects of reintegration opportunities
for those being subsidized. These stand in contrast to
the positive effects: the participants are socially stable
and not socially ostracized and the local infrastructure
is improved. At the micro-level, continuing education
measures contribute to enhancing the competitiveness
of the participants. At the macro-level, they improve
the human capital of the labor force supply. Impact
analyses have shown that support for advanced vocational
training (FbW) is successful when geared to a specific
target group and is closely associated with a company.
Similar to the FbW, however, when using limited
wage subsidies, we must be careful that expectations
are not set too high nor that too many resources are
used. The primary aim of wage cost allowances is to
compensate for, at least temporarily, the lower productivity
of subsidized individuals. The net effect on employment
is fairly limited in scope because it can also
affect the unemployed who have found a job without
any support.
Where are reforms to the work of the IAB necessary?
Our findings support consistently motivating the
unemployed through a strategy of give-and-take.
Motivation is the goal of such initiatives as binding
reintegration plans, shorter programs and wage replacement
benefits that decline over the course of the
unemployment period. An integral component of a
motivational strategy is having a streamlined placement
system that keeps the intensity of a job search
high for those seeking work. Both public and private
providers can make an equal contribution here.
Also required for reintegration opportunities is a strict
orientation of programs to the primary labor market
so that as many workers as possible are offered permanent
employment in the user enterprises or use other
mechanisms to transition into new jobs. One initiative
that has been successful in this area was providing
funding for unemployed people who are starting their
own businesses.
How could promotion mechanisms be simplified?
Seen from the point of view of labor market research,
were promotion mechanisms appear too complex.
By using standardized modules instead of creating
new programs again and again for similar content,
labor market policy will need to become more targeted.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
The IAB considers its primary responsibility to be identifying
opportunities and risks on the labor market
and developing alternatives for action. It will depend
on making the public more aware of our scientific
findings, thus improving the contribution we can make
to shaping public policy.
“A streamlined placement system
keeps the intensity level of those
seeking jobs high.”
Dr. Ulrich Walwei
Substitutional Director
Institute for Employment
Research (IAB) Nuremberg
54
II What are we doing?
The unemployment rate for those who do not have a professional qualification
(i.e. low-skilled workers) is above average and has risen steeply in the last few decades.
While this rate in West Germany was still around 6 % in 1975, by the end of the ‘90s,
it had reached almost 25 %. In the year 2000, it was still just under 20 %. In East Germany,
half of all people without professional qualifications were unemployed in the year 2000.
The absolute number of these individuals is, however, very low because the general level
of education in the East exceeds that in the West. (See also figure on page 12).
We are improving the quality of the training
and continuing education programs on the market
•
II 6
1975 ’77 ’79 ’81 ’83’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 2000
25 %
20 %
15 %
10 %
5 %
0 %
Total
Without professional
qualification
Apprenticeship/technical
school
University/technical
institute
Source:
Institute for
Employment
Research
Qualification-specific unemployment rates,1975-2000, Graphic I
Former West Germany and West Berlin
55
A total of almost 40 % of all unemployed individuals do not have a professional qualification
(West: 46 %, East 22 %). This is an indication that not having a professional qualification
is particularly risky with respect to the labor market. Hence, improving training and continuing
education is the most important element in lowering the number of low-skilled workers
who can either only find low-paying work in Germany or no work at all. This must begin at
the secondary school level and continue as part of a lifelong learning process.
•
Total
Without professional
qualification
Apprenticeship/technical
school
University/technical
institute
Source:
Institute for
Employment
Research
1991 ’92 ’93’ 94 ’95 ’96 ’97 ’98 ’99 2000
60 %
50 %
40 %
3 0 %
20 %
10 %
0 %
Qualification-specific unemployment rates, 1991-2000, Graphic II
Former East Germany and East Berlin
56
II What are we doing?
1992 ’93’94 ’95 ’96 ’97 ’98 ’99 2000 ’01 ’02
Supply and demand for training slots, 1992-2002
Source: German Federal Institute for Vocational Training
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Supply
Demand
The German training system, the quality of which is envied around the world,
is showing weaknesses.
One of the main reasons is that training has become too expensive for many companies
today. This especially applies to medium-size companies that provide a total of 80 % of training
slots. Numerous regulations such as the training aptitude ordinance or the training
regulations, are far too complex for smaller companies and start-up entrepreneurs. More
than 40 % of companies in the West and over 50 % of companies in the East do not have formal
authorization to provide training. The specified syllabi for some training courses are so
demanding that they can only be offered by large companies with internal departments for
apprenticeship training.
It is also true that many companies are hesitating to hire trainees as a result of the dampened
outlook for growth. A long-term HR planning policy with “training reserves” which
would be urgently necessary to in light of demographic developments and the foreseeable
decline in young employees, is only pursued by a small number of companies. At its core,
the approach to training taken by many companies today is similar to the approach taken
almost 100 years ago. At that time, anyone who hired a disproportionately large number of
apprentices as an “apprentice breeder” was accused of attracting a larger number of assistants
for which there was actually no use. Today, we should really be aware of the fact that
the professional opportunities that the individual has with vocational training are certainly
better than without. And we should also know that apprenticeships are “fertile ground for
the success of company” (German President Johannes Rau).
•
•
57
As the illustration shows, there was an insufficient number of training slots to meet demand
between 1996 and 1999 and again in 2002. In 1999, the German Alliance for Jobs
made a promise to give training to each young person wanted training and was able to
participate but this was a promise they couldn't keep. This was particularly true in the former
East Germany where the situation on the training market was especially bad. This year
as well it is likely that there will be an excess of demand. At the end of May, the number of
applicants registered at the job center was around 170,000 more than the number of registered
training slots.
The weaknesses in the system are being fought with the new training offensive.
The federal government, economic associations and trade unions have launched a campaign
for additional training slots and training companies under the motto “Training now –
Everyone deserves success”. Starting in August of 2003, the training aptitude ordinance
will be suspended for five years. As a result, companies providing training will no longer
be required to provide proof of vocational and pedagogical knowledge in a course with
an examination. The fact that last year 18,000 companies applied for an exception to the
examination and offered additional training slots is clear evidence that this initiative made
it easier for companies and start-up entrepreneurs to provide training. Also, training occupations
and the contents of training courses have been adjusted even more to meet the needs
of companies and trainees alike. New, more specialized training occupations will be created
which require less complex, two-year training measures for more practically-oriented young
people as well as modular training courses. Young people who are not yet ready for training
are prepared through a combination of internships subject to compulsory social contributions
and professional preparatory measures. In the former East German sector, the joint
2003 training slot program between the federal and state governments will continue to be
developed. The “capital for work” program was expanded so that capital can flow into companies
as additional trainees are hired.
The economic associations have promised to mobilize additional training slots in companies.
The collective bargaining parties should agree to an increased number of agreements
that support training in the collective agreements. These could be, for example, opening
clauses for training remuneration or wage concessions made when a certain number of
training contracts are pledged and the trainees are accepted. If the efforts of the economic
associations and the collective bargaining parties are not sufficient, it will be necessary to
also consider a training levy as a last resort. This levy would be paid by companies who do
not offer training and used to finance non-company specific training slots. This type of levy,
however, could potentially place a strain on financially weak companies and create new
bureaucratic structures. Private initiative is, however, much more preferable to state intervention.
The “Chemical Collective Package 2003” shows that some people are taking the
initiative. One of the agreements that it contains is that the number of training slots will
be raised next year by 1.7 % and additional increases will be established for subsequent years.
Similar types of signals are coming out of other industries.
•
•
•
“Lifelong-learning is an as yet unrealized catch phrase.”
Hartmut Buck
Fraunhofer Institute for
Industrial Engineering
58
II What are we doing?
The lack of training that the unemployed have is the primary cause of the difficulties
that companies have finding suitable applicants for open positions.
The stems from the fact that applicants have either had poor training or none at all and
the advanced training in previous professions was also either poor or nonexistent. Based on
the assessment of many experts and companies themselves, “on the job training” in companies
guarantees the most success because it is so practically-oriented. Now, however, the statistics
show that companies in Germany are becoming less and less active in continuing education
and training. It is usually small companies that are not able or willing to raise resources
in this area. Particularly in times of rapidly changing product and technology requirements
and a declining supply of employees, providing ongoing advanced training to their
employees would be in their own company interest in the long-term. They are not only limiting
their own opportunities for development but are also neglecting the responsibility they
have vis-à-vis their employees. Because technical knowledge is advancing so rapidly, without
this type of continuing education, their employees are no longer up-to-date and have problems
finding new jobs should they be dismissed. Here as well, the responsibility is ultimately
transferred to the state, namely the job center. Of the 50 billion € in total that the Federal
Employment Service spent last year, just under 7 billion € flowed into training measures.
One focus of the active labor market policy measures is promoting advanced
vocational training.
In Germany, there are a number of state and private providers of advanced vocational
training measures. It is estimated that nationwide, there is a total number of around 35,000
providers who offer 400,000 subsidized and unsubsidized measures. In 2002, the Federal
Employment Service provided funding for advanced vocational training of around 331,500
individuals. Based on their data, around two-thirds of all participants are no longer unemployed
six months after completing a measure. Success varies considerably, however, depending
on the type of measure. Some companies have reported having very bad experiences
particularly with measures that are too far removed from labor market and not tied to a
specific company. In addition, it must be assumed not only that many of those seeking work
who want training would be confused by the large number of measures being offered but
also that it would be too much to expect the job centers with their current organizational
structure to provide an assessment of a specific training needs of those seeking work. The
goal of a reform must be to bring training more closely in line with the needs and skills of
the unemployed and company requirements which are much more individual today than
they have been in the past.
•
•
59
Consequently, since the beginning of the year, several initiatives have served to strengthen
the structural alternatives that the job centers have, the accountability of those who receive
advanced training and competition between the individual educational providers. Training
vouchers are issued that the jobless can use to choose from approved measures and providers
after a counsel-ing session with the job center. The job center assumes the costs for approved
advanced training. The training objectives, the expiration date and the regional validity
appear on the training voucher. Prerequisites for advanced training and the quality criteria
for providers and measures will no longer be reviewed in the future by the job center but
by external offices. There are plans for a certification process which will encourage greater
transparency and more competition on the advanced training market. Until then, the training
offerings will continue to be reviewed by the job centers. These are bound to place
more strict requirements on the efficiency of the advanced training courses. Moreover, cutting
benefits will prevent individual unemployed people from taking advantage of the advanced
training period to extend the length of their eligibility for benefits.
The success of these measures will depend largely on whether the unemployed have an
adequate overview of the advanced training and continuing education market so that they
can get some use out of their training vouchers (experience with the placement vouchers has
been rather slow) and whether competition between training providers will be intensified or
weakened if providers fail to meet quality criteria. However, even if individual cases are successful:
advanced training and continuing education measures can only ever be a second-best
solution. Reintegration (even for low wages) and on the job training with the opportunities
for advancement it offers are in principle is preferable (see description of the VW project
5000 x 5000). The planned modular measures, however, are not a good way to improve the
knowledge of those seeking work without removing them for a longer time period from the
placement process.
•
•
The goal of the project is to manufacture and sell
a new product, the VW Touran, working with newlyhired
people who had previously been unem-ployed.
The project is to create a total of 5,000 jobs.
The future employees will first be trained for a
nine-month period in “general automotive manufacturing”,
three months of training are provided
by labor administration and six months are spent in
the company on a limited work agreement. After
the individual has been taken on as a permanent
employee, he or she has the opportunity to participate
in a voluntary training program offered by the
IHK Lüneburg-Wolfsburg. The individual training
time is three hours a week, of which half is remunerated
as time working and the other half is borne
by the employee himself. After two years, the participants
must analyze and process a typical company
problem in a workshop; if they successfully solve
the problem, they are awarded the IHK “Automobile
Builder” certificate, a new qualification that was
created for this project. The big advantage of this
project is that two different elements are combined:
specialized on the job training in a defined
working relationship and the opportunity to, at the
same time, acquire a general, recognized and certified
qualification. In the collective bargaining
system that was negotiated with the IG Metall trade
union, working times are highly flexible and payment
is based on success. This payment lies below
the VW standard internal wage but it is not less
than the average wage in the metalworking
industry.
VW Project 5000 x 5000: Example of a targeted, company training program
in cooperation with a public training provider
60
II
In your opinion, what are the biggest problems
training and qualifying skilled workers in Germany?
Most German school graduates continue to go through
an apprenticeship in the “dual system”. Overall, this
system is still successful. However, the willingness of
companies to provide training during difficult times
must be preserved. In addition, the contents of training
programs must be adjusted more quickly to the rapidly
changing requirements of the working world than has
been the case. In Germany, there are too many institutions
involved in this process. Moreover, we have to
ensure that there are ways for weaker school graduates
to receive training. One of the obvious problems of the
dual system is that it compensates for shortfalls in learning
with general academic education. And, rightfully
so, there is an intensive debate about the efficiency of
state continuing education and retraining measures for
the unemployed – this area is extremely cost-intensive
and often has questionable decision-making and incentive
structures. In this area, policy should rely more
heavily on labor market research to establish a better
foundation for making decisions.
How would the training and continuing education
system need to be restructured in detail to meet the
require-ments of the labor market in the future?
The authorization which gives permission to create training
contents for recognized training occupations
should be concentrated among fewer players. Companies
should be motivated to actively provide training
through monetary incentives such as lower taxes but
also through legal deregulation. In the area of statesubsidized
continuing education and retraining, the
overall system must be subject to a critical review based
on scientific efficiency analyses.
What is your assessment of the concept of less complex,
shorter training alternatives for young people
who are more practically-oriented?
Basically very positive. However, we must ensure that
training is appropriately standardized and certified.
In addi-tion, the training courses should be structured
in modular way so that after the student gains some
practical experi-ence, a higher qualification can be
pursued.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do you
see for action?
I make an attempt in my own research to always looks
critically at whether the way the labor market actually
behaves is the same time as how it is intended to in
the course books. If the answer is yes, one would have
to encourage labor market politicians to take the effect
of economic mechanisms seriously and set the framework
conditions accordingly; if the answer is no, we
must clarify why something does not function as planned.
I have nothing to lose in communicating the
results of my research beyond my research community.
The time in which academics perform their research in
their ivory towers has finally come to an end.
“The dual system is showing
visible problems.”
Prof. Dr. Felix Büchel
Research Group Leader,
Max-Planck Institute for
Educational Research
61
Labor law regulates the relationships between employees and employers
and establishes the legal framework for balancing the employer’s need
for flexibility and the employee’s need for social security.
At the same time, labor law plays an important part in guiding labor market policy.
The high unemployment rate is cause to assess whether the density of regulations on
the German labor market restricts employment opportunities for employees and the ability
of companies to act. More flexible labor laws can help to remove barriers to hiring people.
We are making labor law more flexible
•
Modalities of Dismissal Protection Up to Now
II 7
The Dismissal Protection Act applies to all employees
who have been employed in the same company
or enterprise for more than 6 months at the time
of dismissal if there are more than 5 employees
employed in the company on a regular basis.
Apprentices do not count and part-time employees
are only counted proportionally.
The statutory notice periods are as follows,
if the employee has been employed …
less than 2 years: 4 weeks
more than 2 years: 1 months
more than 5 years: 2 months
more than 8 years: 3 months
more than 10 years: 4 months
more than 12 years: 5 months
more than 15 years: 6 months
more than 20 years: 7 months
The collectively agreed notice periods that have
precedence over the legal regulations are generally
on a sliding scale based on the length of employment
and/or the age of the employee. In some
areas of collective agreements, there is a special
kind of dismissal protection. In these areas, ‘dismissal
with notice’ is either not permitted or only
permitted with considerably longer notice periods
if the employee has worked at the company for a
long time (e.g. in the iron and steel industry after
the age of 50 and 15 years of employment in the
company). On the other hand, it is also possible to
dismiss an employee without notice for good cause
such as a persistent refusal to work. The principle
behind dismissal protection statutes is to retain
jobs. In general, when the a dismissal protection
lawsuit is filed, the goal is to continue the working
relationship. The employee, however, receives severance
pay if the dismissal was illegal but continuing
the working relationship would not be reasonable.
Currently, the employer can dismiss an employee
without paying severance if he can provide proof
of a pressing operational reason (if, for example,
there is no longer any work in the company or the
position is being eliminated due to restructuring).
In practice, however, there are very often legal disputes
particularly in the area of the social criteria
used by the employer to select employees to be
laid off which must take into account the social
standing of the employee. These are, first and foremost,
the length of employment, the age of the
employee and the individual's legal obligation to
provide support (marital status and children). Other
needs, such as an occupational illness, an accident
that occurred at work where no fault has been
established or a severe disability must also be considered.
The employee who is the least dependent
on the job must be dismissed. To avoid having
a long, drawn-out legal dispute or to bring one to
its conclusion, there is often a court-ordered or
out-of-court settlement which requires the employer
to pay severance.
62
II What are we doing?
The dismissal protection statutes have become difficult to manage
and proven to hinder hiring in some small companies.
Many business owners baulk at hiring new employees because it is difficult to let them
go when times are tough. This is especially true for employers who have already had to deal
with at least one dismissal protection lawsuit with uncertain chances of success. According
to the IAB company panel, almost one million working relationships are terminated by
employers every year. Lawsuits are filed in around 11 % of the cases.
In a survey conducted by the Center for European Economic Research (ZEW), almost
two-thirds of the companies surveyed felt that dismissal protection in Germany was of either
average or considerable importance as a hindrance to flexibility. In the retail industry,
it was assigned a lot of weight. Small companies in particular are much more reluctant to
hire additional personnel when they are at the beginning of an upswing but are still slightly
unsteady because, should dis-missal be necessary later, it is associated with lots of administrative
work, financial costs and legal risks. For it is the case the when the sixth employee of a
company is hired, dismissal protection applies for everyone. Instead, small companies make
due with overtime hours, pay under-the-table or simply don't accept new work. According
to a survey commissioned by the BMWA of 1001 small companies with 1 to 5 employees
that was conducted at the beginning of March 2003, 14 % of all small companies have not
hired additional employees at least once in the last five years due to dismissal protection.
42 % of these companies could imagine hiring new employees if the dismissal protection
statutes were changed accordingly. For a total of around 1.5 million companies of this size,
modifying dismissal protection could be expected to have a noticeable effect on employment.
Small companies with up to 5 employees will be able to hire additional employees on a
limited basis in the future without them being counted toward the 5-employee threshold.
In the future, legal protection for dismissals for operational reasons will be enhanced as
the selection criteria used for employee layoffs will be limited to three basic factors:
length of employment, age of the employee and the individual’s legal obligation to provide
support. The employer can exclude employees from the selection process by providing
justifiable operational reasons for keeping performers employed or to safeguard a balanced
personnel structure. More legal protection will also be created for dismissals for operational
reasons that must be undertaken as part of company restructuring plan such as when
a company division is eliminated. If the employer and works council agree to a list of
employees to be laid off in seeking a balance of interests, it will be presumed from a legal
standpoint that pressing operational requirements were the reason for dismissal. The judicial
verifiability of the social selection process is limited to gross errors. The aim is to stem
the flood of cases appearing before the labor courts. The new severance claim also serves
•
•
•
63
this goal. The employee can assert this claim when the employer justifies the dismissal for
operational reasons and the employee points out that he can claim severance pay if he forgoes
a dismissal protection lawsuit. In this case, severance should amount to 0.5 monthly
wages per year of employment. This is the equivalent to the standard results of court-ordered
and out-of-court severance settlements. For the employer, dismissal law becomes more transparent
and predictable and the employee does not have to file a lawsuit in each case to
receive severance pay.
Fixed-term employment is also being made more flexible.
The Law on Part-Time Work and Temporary Employment allows fixed-term employment
when an objective reason is provided. An objective reason exists if, for example, there is a
temporary need for a particular skill or to fill in for another employee. In contrast, fixed-term
contracts when no objective reason is given are only permitted for new hires up to 2 years
and can be extended no more than three times within this timeframe. This restriction is
designed to prevent repeated fixed-term contracts that deny the employee dismissal protection
on an ongoing basis. For start-up entrepreneurs, fixed-term employment will be made
easier because the financial outlook of the company is so uncertain during the difficult
start-up phase and it is difficult to foresee how personnel needs will develop. In the future,
during the first four years of the existence of a newly-formed company, it will be possible
to conclude fixed-term contracts without specifying an objective reason for up to four years.
Because older employees have a more difficult time finding employment, as of January 1,
2003, employees over the age of 52 can sign a fixed-term work agreements without an
objective reason even for re-hires and for longer than two years. This regulation is, however,
only valid on a limited basis until the end of 2006. Through a collective agreement, it is
possible to extend the fixed-term beyond the two-year timeframe. The collective agreement
also allows exceptions to be made to the maximum number of extensions of a fixed-term
working contract without an objective reason so that companies can react flexibly to
industry-specific needs. The fixed-term regulations extend back to an EU directive on the
framework agreement for fixed-term work contracts.
•
“It is still difficult today for women to find a balance between
career and family. I hope that the part-time laws will improve
the situation for working women and that employers do not
block this new opportunity.”
Rita Conze
from Unna
64
II What are we doing?
Numerous labor and social laws contain thresholds that are linked to a certain number
of employees which, when exceeded, have certain employer requirements.
Based on the results of a study conducted by the ISG Sozialforschung und Gesellschaftspolitik,
many medium-sized companies consider the thresholds stipulated in labor and social
law to be too strict in the economic and working world. Each new hire that exceeds these
thresholds (see box) can create extra administrative work, time and cost for the companies.
The requirements associated with exceeding these thresholds can represent hiring obstacles
for the employer. As a result, whether or not these requirements are necessary in labor and
social law now that framework conditions have changed must continued to be reviewed on
an ongoing basis.
As a result of the amendment to the Works Constitution Act in 2001, some thresholds were
reduced thus raising the number of works council members as well as the number of works
council members to be released from work duties. In contrast, the reform of the Commercial
and Industrial Activities Law in 2002 got rid of special provisions for companies with a minimum
of 20 or a minimum of 10 employees. In addition, the numerous thresholds of the
Workplace Ordinance that are still contained in the box are to be lifted by the reform of the
Workplace Act scheduled for this year. This will give companies flexibility for their situation
within the mandatory European requirements. It will make it easier particularly for start-up
entrepreneurs and medium-size company owners to fulfill the relevant requirements.
Within this context, there are changes to the Dismissal Protection Act planned which will
exclude temporary employees from being counted towards these thresholds.
•
•
•
65
Variable thresholds with 1 or more employees
• Internal company representatives appointed to provide medical and
safety supervision, data and environmental protection, varying thresholds
depending on occupational accident insurance fund and type
of company (Occupational Safety Act §§ 2 and 5)
5 or more
• Election of a works council (1 person), simplified election process for
works council
6 or more
• The Dismissal Protection Act applies to all employees who have worked
in the company for more than six months (Dismissal Protection Act § 1)
• The Job Security Act applies to those performing military service:
military service is generally not considered good cause for dismissal
(exceptions for companies with five or fewer employees on a regular
basis for unmarried employees who serve in the military for more than
six months, Job Security Act § 2)
• Separate toilets for men and women (Workplace Ordinance § 37)
11 or more
• Easily reachable breakroom (Workplace Ordinance § 29),
Documentation in accordance with § 6 Dismissal Protection Act,
Risk assessment
16 or more
• Legal claim to part-time work unless there are legitimate operational
reasons (Law on Part-Time Work and Fixed-Term Employment § 8)
• Claim to part-time work during child-raising leave unless there are pressing
operational reasons (Federal Law on Child Raising Allowance and
Leave § 15)
20 or more
• Employment obligation for severely disabled individuals (5 percent of
positions), otherwise a monthly compensatory levy per unoccupied
compulsory position of 105 € to 260 € (Social Code IX §§ 71, 74 and 77)
21 or more
• Works council has three members (Works Constitution Act § 9),
• Approval of works council for hiring, grouping, regrouping and transfers
(Works Constitution Act § 99),
• Consultation for operational changes (Works Constitution Act § 111),
balance of interests and social plan (Works Constitution Act § 112),
• Enforceable social plan for substantial layoffs of 20 % of employees in
the company (Works Constitution Act 112 a),
• Verbal communication to the workforce about the financial situation
and development of the company at least once per quarter after coordination
with the works council (Works Constitution Act § 110 para. 2),
• Employer is required to notify the job center if more than five employees
are laid off (Dismissal Protection Act § 17),
• Appointment of one or more representatives responsible for safety who
work together with works council (Social Code VII § 22),
• Formation of an occupational safety committee consisting of employer,
works council, company doctor, occupational safety specialist and the
safety representatives in companies where a medical supervisor or specialized
representative for occupational safety are appointed; depending
on the thresholds of the occupational accident insurance fund
(Occupational Safety Act§ 11)
40 or more
• Employment obligation of 2 severely disabled individuals otherwise
monthly compensatory levy (0=180 €, 1=105 €)
51 or more
• Works council: 5 members (Works Constitution Act § 9); works council
election in companies with 5 to 50 employees on a regular basis must
follow a simplified election process, for between 51 and 100 employees
on a regular basis in the company, a simplified election is optional
60 or more
• Employer must notify job center if 10 % or more than 25 employees
are laid off (Dismissal Protection Act § 17)
• Social plan enforceable if 20 % or at least 37 employees are to be laid
off for operational reasons
• Employment obligation of 3 severely disabled individuals otherwise
monthly compensatory levy (0=780 EUR, 1=360 €, 2=105 €)
70 or more
• Employment obligation of 4 severely disabled individuals
(0= 1040 €, 1=780 €, 2=360 €, 3=105 €)
90 or more
• Employment obligation of 5 severely disabled individuals
(0=1300 €, 1=1400 €, 2=540 €, 3=210 €, 4=105 €)
101 or more
• Works council: 7 members (Works Constitution Act § 9)
• Works council forms an "economic committee"
(Works Constitution Act § 106)
• First aid room for special accident hazards (Workplace Ordinance § 38)
110 or more
• Employment obligation of 6 severely disabled individuals otherwise
monthly compensatory levy
(0=1460 €, 1=1300 €, 2=1040 €, 3=540 €, 4=210 €, 5=105 €)
130, 150, 170 and 190 employees
• Employment obligation of 7, 8, 9 and 10 severely disabled individuals
otherwise monthly compensatory levy
200 or more
• 1 works council member to be released from work duties unless another
agreement has been expressly reached through a collective agreement
or a company agreement (Works Constitution Act § 38)
201 or more
• Works council: 9 members (Works Constitution Act § 9)
210 or more
• Employment obligation of 11 severely disabled individuals otherwise
monthly compensatory levy.
401 or more
• Works council: 11 members (Works Constitution Act § 9)
500 or more
• Required to notify job center if a minimum of 30 employees are
to be laid off within a 30-day period
501 or more
• 2 works council members to be released from work duties unless another
agreement has been expressly reached through a collective agreement
or a company agreement (Works Constitution Act § 38)
701 or more, etc.
• Works council: 13 members (Works Constitution Act § 9)
Overview of selected thresholds in labor and job security laws for different numbers of employees
66
II
What types of changes to labor law could stimulate
employment?
The current structure of German labor law with its
numerous individual laws and far-reaching precedentsetting
court rulings acts as a considerable overall
deterrent to employment. The first requirement is,
consequently, a mandate for legislative action to meet
the requirements for creating a uniform and transparent
Labor Code or at least an Employment Contract
Act. This code or act should incorporate clearly defined
areas of flexibility that make it possible for the employer
to make one-sided changes to working conditions.
Dismissals for operational reasons should be permitted
as a matter of principle in return for severance pay.
Renewable fixed-term work contracts (without an objective
reason) should only be excluded for temporary
employment within a very short timeframe. Company
processes for employee codetermination and participation
are to be generally accelerated by means of fixedterm
employment regulations and limited in their
scope of application. Employment cannot, however,
be noticeably stimulated by changes to labor law alone.
Basic reforms must also be made to the social insurance
system and commercial law and tax law. These reforms
must ultimately result in simplified administrative processes
and must considerably reduced costs for companies
where more jobs must be created.
Where is it necessary to state things more precisely
to reduce the workload for labor courts?
For dismissals for operational reasons, the criteria used
to select employees to be laid off should be limited to
the age of the employee, the length of employment
and clearly defined legal obligations to provide support.
The requirements for person-specific dismissals as
a result of illness should be made more legally precise
and simplified with respect to jurisdiction requirements.
In general, labor law standards should arrive at
clear legal-consequence orders and should not just contain
programmatic clauses (negative examples: §§ 8
Law on Part-Time Work and Fixed-Term Employment,
83 Social Code IX, 107 Commercial and Industrial
Activities Law).
Where do you see a need for “purifying” labor law?
All wage continuation payments should be given a
standardized structure as is the case for part-time
claims that it would be best to get rid of completely.
The numerous duties employers have to notify, instruct
and advertise should be reviewed to determine if they
are necessary.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do you
see for action?
As a university professor, I only have the opportunity to
play an indirect role: to give students a practicallyoriented
education and to communicate to them the
significance of how the structure and application of
labor law affects the employment situation, to offer
advice to the business community and legislators as
well as to conduct research on labor law that is not
only socially just but is also competitive and meets market
conditions.
„Labor law acts as a considerable
overall deterrent to employment.“
Prof. Dr. Burkhard Boemke
University of Leipzig
67
Collective agreements play an important role in the structure of our labor market.
They establish minimum wages and working conditions, simplify wage negotiations as
not every individual company is required to negotiate wages with its employees, and hence
make an important contribution to social harmony within companies. In the last few years,
however, more and more companies, particularly in East Germany, have left their employers’
association and the degree of organization in trade unions continues to decline. These might
be a symptom of undesirable developments, indicating a need for change.
Not all collective agreements leave enough room for company agreements.
In addition to establishing working hours, the standard nationwide collective agreements,
also stipulate wage rates. These rates are then binding for the companies and the employees
within the entire industry as long as they are members of the organizations that have signed
the collective agreements. It is possible for wages to be higher than the effective wages but
they are not allowed to be lower. The collectively negotiated wages therefore act as minimum
wages. This obligation to comply with the stipulations in the collective agreements
affects the majority of employees in Germany: just under 70 % are employed by employers
bound to these agreements; in addition, many companies not bound to the collective agreements
still orient themselves around them which means that these agreements are standard
for a total of around 85 % of all employees. Under this system, opening clauses in collective
agreements can be used to reflect differences in the financial situations of individual companies.
If they were no flexibility that allowed for deviation from the negotiated agreements
in times of crisis in individual companies, regions or for particular groups of people (i.e. new
hires or trainees), it would often be the case that the only remaining alternative would be
employee layoffs. Wage increases that reward and motivate employees in profitable companies
can ultimately pull the rug out from under companies that are losing money.
The collective agreements should be structured in such a way that it is easier to conclude
in-house alliances for jobs. Without the consensus of the collective bargaining parties, current
laws prevent this from happening. According to § 77 para. 3 of the Works Constitution
Act, agreements on work compensation and other working conditions that are regulated by
collective agreements or are otherwise regulated, may not be the subject of company agreements
unless the collective agreement expressly allows this (opening clause). This regulation
restriction does not apply to individual agreements between the employer and a specific
employee. It is, however, a prerequisite that these agreements do not infringe on § 4 para. 3
of the Collective Agreement Act which specifies that agreements which deviate from the
collective agreement are not permitted unless they are allowed by the collective agreement
(opening clause) or unless they benefit the employee (favorability principle).
We are reviewing collective bargaining law
•
•
•
II 8
68
II What are we doing?
•
•
Opening clauses for company agreements can secure jobs as globalization pushes forward.
As global economic competition intensifies, it becomes more likely that companies will
have to undergo phases of restructuring. This also means that it is increasingly probable that,
for certain employees, job opportunities will worsen at local wage levels. This makes it even
more imperative that opening clauses are used to enhance the flexibility for in-house alliances
that protect jobs. There has already been a lot of movement in this area. Over the last
few years, more and more opening clauses, hardship case regulations and other types of provisions
have been incorporated into many collective agreements to adjust these agreements
more flexibly to the needs of companies and employees. The goal is to allow companies to
deviate from the standard regulations of nationwide collective agreements in the areas of
income and working hours under certain circumstances and to take into account company
needs, particularly when securing jobs is at stake (see examples in the box om page 69).
According to a survey by the Center for European Economic Research (ZEW), 19 % of eligible
companies made use of the hardship clauses during times of crisis. 33 % of companies
took advantage of the opportunity to employee the long-term unemployed at wages below
collectively agreed levels. In around 49 % of companies where this was optional in the collective
agreements, compensation for new hires was lowered. The great majority of other companies
either did not hire new people or left wages at collectively agreed levels so as not
to lose key performers as a result of reduced wages. It is often necessary for the collective
bargaining partners to give their consent before an opening clause can be used in the collective
agreement. This has apparently worked well in companies where this possibility exists.
“The people working here on site understand the situation
much better than the trade union management at headquarters.
We receive a bonus that is dependent on company performance.
If the company does well, we do well. We work with
one another and not against each another.”
Antje Küster
Works Council chair from Kiel
The following percentages of those surveyed agreed with the statement:
“If a company is doing poorly, it should be possible to take a pay cut before the possibility of layoffs is raised.”
Representative survey of 2000 people age 14 and over in Germany. British American Tobacco Leisure Research Institute 2003.
71
70
71
• Overall
• Women
• Men
Employed
77
72
68
• 18 to 24 years
• 25 to 54 years
• 55 years and over
• Management
• Civil servants
• White-collar workers
• Blue-collar workers
Professional categories Age groups
77
77
70
68
I’d rather take a pay cut than be laid off
69
Chemical industry
Rubber industry
Paper industry
Paper, cardboard and plastic-processing
industry (East)
Textile and clothing industry (West)
Ceramic industry (East)
Leather industry (West)
Travel agencies
Shoe industry (West)
Housing industry
• Collectively agreed base compensation may be reduced up to 10 %
• Amount and/or date for payment of annual bonus variable
• Amount and/or date for payment of annual bonus variable
• Amount and/or date for payment of annual bonus variable for 50 % of holiday pay (West)
• Postponement of when the collectively agreed wage increases go into effect
• Date for payment of annual bonus variable
• Payment of annual bonus and holiday pay can be deferred for up to three years
• Payment of annual bonus and holiday pay can be deferred for up to one year
• Collectively agreed provisions on salaries, annual bonuses and holiday pay may be variable
through limited company agreements
• Amount and/or date for payment of annual bonus may be variable up to a maximum of 50 %
• Also permitted to deviate from collective agreements on compensation that are unfavorable to
the employee (also the case for holiday pay in the East)
Waste disposal industry
Beverage industry (East)
Metalworking and electrical industry
Paper, cardboard and plastic processing
industry
Sawmill and wood processing industry (East)
Textile industry
• Agreement on collectively agreed job security
• Suspension of collectively agreed supplements
• Application for a special regulation
• Date for payment of annual bonus variable
• Utilization of a limited special regulation with consent of the collective bargaining parties
• Postponement of when the collectively agreed wage increases go into effect (East)
• Limited suspension of wage increases for acceptance of employment (West)
Chemical industry
Private recycling and waste disposal industry
Paper manufacturing industry
• For those unemployed for a longer period of time and new hires, wages may be 10 or 5 % lower
• For new hires, wages can be 20 % lower during the first year of employment, between the second
and the seventh year, this amount is lowered annually until the wage rate has been completely
reached
• For those unemployed for a longer period of time and new hires, wages may be 10 or 5 % lower
Source: BDA-Tarifarchiv, iwd from April 3, 2003, BMWA Tarifvertragliche Arbeitsbedingungen im Jahr 2002
Flexibility through opening clauses in collective agreements
Opening clauses on compensation without consent of the collective bargaining parties
Opening clauses on compensation with consent of the collective bargaining parties
Hardship case clauses
Entry-level wages
Private banking
Chemical industry
Construction industry (East)
Travel agencies
Textile and clothing industry (West)
Print industry
• As of July 2003, 4 %, as of 2004, 8 % of the monthly, collectively agreed salaries, variable based on
performance and success
• Variable special company bonus based on company success
• Variable special company bonus based on company success: corridor of 80-125 % (West)
and 50-95 % (East)
• Wages may be up to 10 % lower than the collectively agreed wages
• Variable special company bonus based on company success
• Collectively agreed wage increases can be suspended in full or in part until the end of the term of
the collective agreement either
• Reduction of working hours with wage and salary reduction
• Payment of the annual bonus can be postponed until March 31 of the following year
70
II What are we doing?
•
•
It is different in areas of collective agreement where there are no opening clauses. Here,
in-house alliances for jobs infringe on the favorability principle in collective agreement law
and hence, also violate the principle that the autonomy of the collective agreement takes
precedence. They can be disputed by trade unions or employers. Viessmann, Burda and
Holzmann are well-known examples of this (see box).
In his statement on government policy on March 14, 2003, the German Chancellor asked
for “more creativity in solving these problems”. According to the German Chancellor, the fact
that Article 9 of our constitution lends constitutional standing to the autonomy of collective
agreements, obligates the collective bargaining parties “to assume responsibility for our
economy and society. Here, no one can or may be allowed to put individual interests above
overall economic development.” The voluntary commitment of the collective bargaining
partners to create more flexibility has existed for a long time. In a joint declaration issued
by the BDA and DGB from July 9, 1999, it was stated: “To strengthen regulations that are
more company and practically-oriented in nationwide collective agreements, collectively
agreed election and supplementary options, corridors and opening clauses must be expanded”.
And, at the beginning of a paper presented by the DGB at the beginning of May 2003,
they made a commitment to “review existing collective bargaining negotiations in industries
which do not have any options that allow collective agreements to be opened in a controlled
fashion, to negotiate appropriate regulations with the employers and to secure jobs during
times of crisis”. Moreover, it supports “considerations for incorporating company interests
more strongly in structuring wages”. This means that the collective bargaining partners share
of the responsibility to continue developing alternatives for flexibility in the collective wage
negotiations. If they are not able to live up to their commitment, the German Chancellor
has a legal regulation in mind. Many employees consider in-house alliances that secure jobs
to be very positive. According to surveys, the great majority of them would be prepared to
accept wage reductions to prevent layoffs (see box on page 68).
Viessmann:
The heating system manufacturer, Viessmann,
planned to put its manufacturing site for its
newly-designed gas units in the Czech Republic
where conditions are more cost-effective. In response
to this development, the works council and
the employer reached an agreement to extend the
35-hour week established by the collective agreement
for a three-year period without remuneration
in exchange for a job guarantee at this location.
The IG Metall saw this agreement as an
infringement of the nationwide collective agreement
and went to court. After two years of legal
disputes, both sides agreed to a settlement in the
form of an branch-wide collective agreement valid
only for Viessmann. It contains an opening clause
which allows Viessmann employees to continue to
commit to an unpaid, 2-hour extension of the
work week in individual agreements. The term of
the agreement was extended and the company’s
desire for a third, unpaid hour of work was rescinded.
Burda:
The company Burda Druck agreed to a regulation
with its works council in 1996 to secure jobs.
Based on this regulation, the collectively agreed
35-hour work week would be extended by 4 hours
of which 2 hours were not compensated. In return,
the employer promised unrestricted continued
employment for several years. The goal of this
agreement was to prevent a new print machine
from being relocated to an existing operating site
in Alsace. After a suit was filed by the IG Medien,
the German Federal Labor Court (BAG) determined
that the agreement infringed on collective bargaining
law. The employer’s appeal on the basis of
the “favorability principle” was rejected by the
BAG. Likening longer working hours to job security
is methodologically not feasible (“like comparing
apples and oranges”). Ultimately, it was determined
that the employer was not bound to the
collective agreements in the print industry.
The proceedings were suspended by the BAG in
February of 2002.
Holzmann:
To avert imminent bankruptcy at the end of 1999,
a reorganization plan was created which reduced
wages by 6 % and extended the work week to 43
hours (without compensation). The IG BAU called
this an “infringement of the collective agreements”
and, after several rounds of negotiations,
concluded a collective agreement on reorganization
with the employer which extended the work
week by five overtime hours for an 18-month
period. The extra hours worked were put into an
“account” which could be taken as time off between
2002 and 2007. Moreover, affected employees
were transferred to an employment and training
agency with separate collective agreements
and just 80 % of their previous net compensation.
This collective agreement on reorganization was
rejected by the construction employers but not
brought to court.
In-house Alliances without Collectively-Agreed Opening Clauses
71
How can collective bargaining policies help reduce
unemployment?
Unemployment cannot be reduced if the economy does
not grow. New jobs are created when growth exceeds
the increase in productivity. Sustainable growth flourishes
best in a favorable macroeconomic environment
which includes a trade union collective wage policy
that takes into account the existing, distribution-neutral
flexibility but also capitalizes on it. The sum total of
medium-term productivity trends and the European
Central Bank’s inflation target should serve as the
gauge. If wage settlements exceed this mark, monetary
policy will be kept on a tight rein. If wages remain
below this mark, there will be a shortage of purchasing
power-related consumer demand. In addition, the trade
union collective bargaining policy can support the
functioning of the labor market if it regulates and facilitates
hiring and employing trainees and if it promotes
the necessary training of employees throughout their
lifetime with collectively agreed regulations.
What does your plea to bring alliances more in line
with company needs mean?
The trade union collective bargaining policy the over
the last few years has shown to what extent it is possible
to respond to operational factors. In this area, it is
not just about framework regulations such as how to
proceed during times of company crises, but also about
issues of training or long-term work accounts. Both play
an important role in figuring out how company jobs
can be secured.
What is the DGB’s role in setting the course for
these types of collective agreements?
The collective bargaining policy strategies of the trade
unions are discussed and aligned with one another in
the Collective Bargaining Committee of the German
Trade Union Association. As is generally known, the
DGB itself does not conduct any collective bargaining
negotiations, this is the job of the trade unions. It is
the DGB’s responsibility to coordinate the collective
bargaining policy of the trade unions. Politically this is
also important primarily so that the collective bargaining
plans of the individual trade unions can be played
out against one another in public discussion.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
As “professionals in our country” in the fight against
unemployment, all too often economists act as if wage
reductions are the only miracle cure to create new jobs.
I see it is my responsibility to at least make the discussion
about economic policy in Germany in this respect
more pluralistic so that various economic concepts will
emerge from a controversial discussion that will bring
success and act as a guiding hand for political action.
“Unemployment cannot be reduced
if the economy does not grow.”
Heinz Putzhammer
German Trade Union Association,
Member of the Managing
Committee of the Federal Board
72
Economic Report 2003
What
happens
next?
III
73
This is why no one should think that the current and planned reforms will solve all
the problems of the future as well. The willingness to adapt and the flexibility that are
demanded today must be preserved by today's generation and become a matter of course
for future generations.
The pressure to adapt comes from many sides: as the European countries in the European
Union gradually come together and globalization advances, the competitive situation for the
German economy intensifies. The decreasing and aging population has resulted in a workforce
that is smaller and older and has changed demand structures.
Modern technologies, particularly in the information and communication fields, offer new
types of services, change how the economy flows and influence the form that work can take.
They make jobs expendable but create new ones at the same time. It is our responsibility to
establish the framework conditions in such a way that not only is the net effect positive but
also so strong that as many people as possible who want to work can.
The labor market will continue to be a challenge.
•
•
•
74
III What happens next?
New member states that have demonstrated competitive advantages particularly in
labor-intensive goods and services are being integrated into the European Union.
Their wage level is considerably lower than that of the former industrialized countries and,
accordingly, the producer prices of labor-intensive products are also lower. As long as these
prices are negotiable, it will depend on to what extent German companies are able to make
up for the disadvantages they have in wage costs with higher productivity, better quality
or higher-end goods and services. If these prices are not negotiable, it will place pressure
on service-oriented, manual labor and agricultural companies in border regions to adapt.
European integration will also lead to the transfer of more powers “to Brussels”. It is already
the case that there is no longer a national monetary and currency policy. This might appear
to some to be unfortunate during the current phase of poor growth and inflation that is
lower than in the other European countries. On the other hand, in the past, the inflationaryrelated
devaluation in European partner countries used to frequently hit the German export
economy quite hard. This negative effect can no longer occur due to the shared Euro.
It is already the case that the Stability and Growth Pact is constricting flexibility in financial
policy. But even without this pact, Germany would have to stay on a clearly defined consolidation
course. This makes it even more important to structure the system of expenditures
and taxes in such a way that it stimulates growth and employment. It is already the case that
the European supervision of government aids restricts national flexibility for state funding
particularly in regional and industrial policy. But it also prevents attempts by other member
states at attaining competitive advantages on the domestic market using government funds.
Less room to maneuver at the national and regional levels means that it is even more necessary
to establish framework conditions in such a way that the ability and willingness of the
public, companies and regions to take their own initiative and manage this transformation
is strengthened. This pressure to stimulate “initiative from the bottom up” will intensify.
•
•
75
Globalization will continue to push forward.
Increasingly, the threshold countries and, once the Doha development round of the WTO
has been successfully concluded, as well as the current developing countries will be serious
competitors on global markets. There is a lot to support the assumption that patterns of
specialization will not change drastically very quickly: Germany and the other industrialized
countries will be leaders in capital and knowledge-intensive goods and the threshold and
developing countries in labor-intensive products. However, this type of distribution is not one
that occurs naturally but instead must be asserted again and again by the German economy
with its will to perform and power of innovation. Particularly in the area of knowledge-based
services in the Internet economy, threshold countries have proven to be extraordinarily
competitive due to their excellent educational systems. They are also pushing more and more
into the markets of the industrialized countries for high-end consumer goods. These countries
have a good chance of moving up in the ranking of the economically-strongest countries
with their young populations, improved educational standards and the opening of
markets to foreign companies and technologies. The process by which the threshold and
developing countries are working to catch up economically means two things for the
German economy: on the one hand it represents potential market losses but, on the other
hand, it also offers the opportunity of success on new markets.
•
“What people in this country are really lacking is confidence in
the future, the rest comes by itself. We are lacking optimism and
the power to act combined with far-sightedness, courage and spirit.
People have to regain their confidence so that they spend the
money they earn without being afraid of the future.”
Robert Henjes
from Dassel
76
III What happens next?
Demographic changes will result in a declining number of people entering new professions
and hence, to a drop in the overall workforce and an aging population.
This will directly affect the ability of the social systems, which are based on a pay-as-you-go
concept, to function. These social systems finance their expenditures for retirees, the ill and
those in need of care primarily from the regular social insurance contributions made by
employers and employees. Problems will occur when there are fewer and fewer people
making contributions and more and more people receiving benefits in the future. Even
though the pension scheme system was reformed in response to this development, one that
has been obvious now for quite a while, at the time of the reform, it was already conceded
that the implemented solution would not hold for anything other than the supposed model
assumptions. In this case, legislators would have to introduce further measures. There are
basically three different options: increasing the contribution rate or the federal grant, lowering
the pension scheme level or increasing the private pension component, or increasing
the standard retirement age. Each of these three options has its supporters. The Rürup
Commission proposes a combination of all three options with the “sustainability factor” and
the gradual raising of the retirement age to 67 years.
The public discussion is primarily limited to financial issues. But it is really about more
flexibility. For it is the case that a society that relies on self-sufficiency and accountability
should not be regulated from the top-down any more than is absolutely necessary. It stands
to reason then that the insured person should have more flexibility in choosing between
either receiving a lower pension earlier or a higher pension later. These types of options with
a corresponding increase or decrease already exist today. However, this flexibility has been
used only very one-sidedly: of the newly approved pension schemes in 2001, 34 % were decreased
and only 0.9 % were increased. The reason for this is not necessarily that older people
don’t want to work longer. Rather, the decisive factor is that the collective agreements stipulate
the employees must retire no later than the age of 65. The first step in more flexibility
for older workers would therefore be to structure these collective bargaining regulations so
that they are optional. This would be the responsibility of the collective bargaining partners.
It is the responsibility of politicians to make not just pension insurance “demographyproof”
but also health insurance and long-term care insurance. There are proposals on the
table to address these issues that will lower the burden placed on those paying contributions
(employers, employee) as a result of the aging population and medical advances. The necessary
reforms to this social insurance system will mean that employees will have to pay fewer
contributions but in return, will have to spend more for private pension schemes. In an
affluent society, which is what we are despite all exceptions, this is not only reasonable but
appropriate. Because making provisions for illness, long-term care and for old-age is for most
of us today considered part of our personal life circumstances. Each person who is not able
to do this on their own will continue to be supported sufficiently by state funds. Based on all
of our experi-ences, "privatization" of previously state-sponsored benefits leads to more competition,
increased efficiency and new service offerings. This is true for the areas mentioned
•
•
•
77
here. More competition and the increase in demand caused by demographic changes can
create market segments with strong growth and a high number of new jobs. In contrast to
when markets of the network industries were opened, we would expect the number of basic
activities to increase. These activities could be performed by low-skilled workers or those who
are more practically-oriented.
Education is the best way to prevent unemployment.
The need for low-skilled workers will continue to decline as a result of European integration
and advancing globalization. The goal must therefore be to provide as many young people
as possible with training leading to a qualification and make advanced education a matter
of course both at the workplace and outside of it. Achieving this goal is the responsibility
of public and private educational facilities, companies and the collective bargaining partners.
A key component of basic education must be languages and the ability to perform interdisciplinary
work. The fact that knowledge becomes obsolete so quickly requires learning to be
a lifelong process and, at the same time, creates room for shorter training programs. Specialized
knowledge that is not learned too early gives the individual proximity to the labor
market and the ability to think analytically and to filter and assess information strategically.
Within this context, the question also arises as to why there are fees required for preschool
attendance but not for university attendance. There are several reasons that support
students contributing to university fees for their education (as is sometimes already the case)
at least after a certain number of semesters or for a second course of study. Educational facilities
today represent in part (subsidized) refuges that keep individuals from having to face
the challenges of the labor market. Training programs that are too long and students who
drop out of courses very late do just delay the start of employment at the expense of the
taxpayer. They can also mean that there is not enough time to build up to a large enough
pension fund, making it necessary for the state to support this person later in life.
The labor market of the future will become more flexible.
Life-long employment with a single employer will be the exception in the future and the
traditional, unlimited full-time position will also no longer necessarily be standard.
Temporary employment, fixed-term activities, part-time work, switching between self-employment
and “freelance” work and performing several parallel jobs will continue to become
more common and make employment more diverse. The political scientist, Günther Schmid,
consequently sees the labor markets of the future as split into “transitional markets”. And
for the trend researcher, Peter Wippermann, the “flexible life entrepreneur” will replace the
traditional employee.
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III What happens next?
To improve opportunities for participation in the working world, the give-and-take measures
introduced for low-skilled workers must be evaluated and, if necessary, adjusted and supplemented.
It must be made easier for parents to combine raising children and working and
the employment opportunities for older workers must be further improved. Bottlenecks on
the labor market which are anticipated by many particularly due to the declining population,
can generally be avoided through controlled immigration from outside. The foreign
labor market can, however, also increasingly be incorporated via information and communication
technology networks into the domestic economic process. Digitalizable services are
exchanged via the Internet. Parts of the labor market will become a ”market without borders“.
Each individual and society as a whole must adjust to the changes described.
These changes touch the heart of our social state and our traditional notions of social
justice as well as triggering fears stemming from, for example, social bonds and social security.
Uncertainty and fear generally tend to reinforce inertia rather than enhancing the
willingness to change. But this response would be completely wrong today. We have waited
long enough. We must act now and react positively to the changes. We must see the challenges
as an opportunity and take advantage of them. In a globalized world, it is not about
sacrificing social justice for the market. It is about searching for new means and ways for it
to remain effective under changed conditions. It is about how we can take advantage of the
ever tighter integration of the global economy to raise the level of prosperity. It is clear: we
must modernize our system if we do not want to risk its entire collapse. The reforms must
consider more strongly the consequences of sociopolitical measures on the ability of the
economy to perform, which have been largely ignored up to now. We must allow for more
flexibility on the job market, on the goods and services markets and in the social security
systems. And, we must demand more individual flexibility and accountability. We have already
said a lot about this. Accountable action must be more productive than state support.
State action may no longer inhibit growth and employment but instead must create the
conditions for them to unfold. Even though this may appear paradoxical to some, this type
of new orientation of social policy will result in more social justice.
The last word stems once again from a common saying: “All things of the past died yesterday;
all things of the future are born today”. Or, as they say in China: “The master of the past
is he who can remember. The master of the future is he who can change”.
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79
What has your research on the future of labor
shown?
Current trends are leading the way to a split in the
labor market: highly-qualified and flexible individuals
are earning more and more income and are regaining
the power to structure their working hours and their
value-added process. The Internet society, while it does
destroy traditional forms of work and social values such
as not working on Sunday, it is becoming easier to
combine family and career, and the time and place
of employment with free time in line with individual
needs. In contrast, people who do not have access
to a professional qualification are caught in a trap.
It is becoming more and more difficult for society to
finance higher unemployment although the number
of jobs in the low-skilled sector is declining on an ongoing
basis. This is the ul-timate challenge for politicians
and society.
What does this mean for those who are just starting
their careers today?
A widely-based education, willingness to change and
continue to learn throughout one’s lifetime have become
absolutely indispensable. Confidence in the social
security system should be supplemented by the willingness
to accept accountability. Multiple jobs, irregular
working hours and insecure contract relationships will
play a dominant role in the working world. This means
that it is necessary to be willing to undertake a certain
amount of risk and to abandon attitudes about what
individuals have a right to from the state.
What you think about Rifkin's theses on the
“Age of Access”?
He talks about the new form of consumer terror that
appears to have emerged from the age of the Internet.
Based on this, having direct, 24-hour a day access to
goods and services makes life just one big, non-stop
shopping trip. For me, Mr. Rifkin, is, however, just a
creator of meaningless words. The “Age of Access” is
really just a wordy paraphrase of the fact that business
is being conducted more and more on service markets,
competition is intensifying through the medium of the
Internet and as a result, customer service is more and
more the focus. Because the future belongs to the service
industry and not industry itself, personal contact
with customers remains a special value in and of itself.
And even in the age of communication, people want to
travel and write letters, too.
The Hartz report has called on all “Professionals in
our country” to make the fight against unemployment
a personal struggle. What opportunities do
you see for action?
It is my job to point out again and again what must be
done: trade unions and businesspeople should abandon
attitudes that block reforms to the labor market and
politicians should risk the leap into the waters of change.
And directly? I create or secure permanent jobs as
the director of two medium-size companies, the IZA in
Bonn and the DIW in Berlin. For example, at the IZA,
of the 30 permanent employees, we have three positions
for trainees. Ongoing further education is a particular
challenge for knowledge-oriented production
companies.
“Multiple jobs, irregular working
hours and insecure contract
relationships will play a dominant
role in the working world. ”
Prof. Dr.
Klaus F. Zimmermann
University of Bonn, Director
of the Institute for the Study
of Labor (IZA Bonn) and
President of the German Institute
for Economic Research
(DIW Berlin)
80
Whatever reforms are made to the labor market and the policies that go along with it,
politicians must always remember that each decision made in the area has a direct effect
on people. This is why this Economic Report also includes two individuals, a manual laborer
and an academic, who are looking for work and their personal anxieties, efforts and opportunities.
A typical day of each one is described starting at home, following them through
various visits to institutions all the way through to interviews at companies or in a temporary
employment agency.
We would like to thank Frauke Rohrwick, Clemens Strackhahn and the companies involved
AZ GmbH Personalüberlassung – Personalvermittlung, bss GmbH Metallverarbeitung,
FontShop AG, GFBM Gesellschaft für berufsbildende Maßnahmen e.V., Arbeitsamt Berlin Süd
(Job Center for Southern Berlin) and everyone else who supported this project on a volunteer
basis with patience and energy.
Photographed by Mathias Horn, Designed and coordinated by studio adhoc GmbH.
The photos of the people quoted originated from the people appearing in the photos
themselves.
Cover photos from photodisc.
Acknowledgements
81
The editorial team:
(From left to right) Arndt Kindermann, Susanne Cassel, Lutz Gärtner, Annett Löser,
Günter Sandermann, Alfred Tacke, Roswitha Hammer, Katja Gerling, Thomas Zielke, Henry Cordes
Published by:
Federal Ministry of Economics and Labor (BMWA)
Public Relations section LP4, 10119 Berlin
Design:
studio adhoc, Agentur für ganzheitliche Kommunikation GmbH
Printed by:
Druckpunkt Offset GmbH, Bergheim
July 2003
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Publication data
82
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