Start-up premium, Germany

About

Country: 
Germany
Sectors: 
All
Target Groups: 
workers/suppliers

 

The introduction of the Ich-AG scheme in 2003, a new public subsidy for business start-ups, was intended to reduce Germany’s unemployment rate, to combat illegal employment and to offer unemployed people a way out of undeclared work. In 2006, the federal government fused the two labour market instruments and the ‘start-up premium’ (Gründungszuschuss) came into effect, aimed at improving administrative effectiveness and avoiding duplicated structures for the scheme.

 

Background

In 2002, the commission on ‘Modern services in the labour market’ (known as the Hartz Commission) was asked to present reform proposals for national labour market policy. Part of the commission’s proposal was the introduction of a new public subsidy for business start-ups (Existenzgründungszuschuss). The subsidy, finally introduced in 2003, became known as the Ich-AG, or ‘Me PLC’. In the beginning, the scheme was criticised for performing the same function as a second, existing scheme, the bridging grant (Überbrückungsgeld). Finally, the federal government fused the two labour market instruments and on 1 August 2006, the ‘start-up premium’ (Gründungszuschuss) came into effect.

Objectives

The introduction of the Ich-AG scheme was intended to reduce Germany’s unemployment rate, to combat illegal employment and to offer unemployed people a way out of undeclared work. However, the rationale behind the fusion of the Ich-AG and the bridging grant schemes in 2006 was more strongly driven by a wish to improve administrative effectiveness and avoid duplicated structures.

Specific measures

Since its inception, the start-up premium has undergone certain changes. Currently, it can be granted to recipients of unemployment benefit who want to start up their own business. In addition to their continued unemployment benefit, recipients are aided by another monthly grant of €300 in the first six months. If, after these six months, the recipient can prove intense business activity and initial successes, the additional €300 can be paid for another nine months. Until the end of 2011 the two stages were reversed, lasting nine months and six months, respectively.

Recipients must fulfil certain prerequisites to take part in the scheme. Firstly, they must still be entitled to 150 days of unemployment benefit on the day of the company’s foundation. Secondly, they must prove themselves capable of self-employed work. Part-time self-employed work is not supported by the scheme. Thirdly, they must provide evidence of the economic viability of their business plan (by statements from the local chamber of commerce and industry, the chamber of skilled crafts or a bank, etc.).

Actors involved

Like its forerunners, the GZ is administered by the Federal Employment Agency (BA).

Outcome of evaluations; lessons and conclusions

Achievement of objectives

There is little evidence available of the effects of the scheme on undeclared work. Research in this area traditionally focuses more on the effectiveness of the scheme as an active labour market instrument, i.e. in terms of its contribution to reintegrating the unemployed into the labour market.

Obstacles and problems

The previous schemes (the Ich-AG and the bridging grant) were criticised for fulfilling the same functions. With regard to the Ich-AG scheme, the viability of the start-ups was also doubted. To create more transparency amongst the different active labour market instruments, the federal government decided to fuse the two instruments.

Lessons learned

Bernhard and Wolff (2011) studied the GZ before its latest reform at the end of 2011. In interviews, BA employees confirmed that the new instrument was easy to handle and provided greater transparency. The evaluation shows that the new scheme does not attract as broad a clientele as the two earlier instruments. For example, more women applied for Ich-AG funds (Bernhard and Wolff, 2011). Caliendo et al (2011) also show that GZ participants are older and have higher educational qualifications in comparison to the participants in the two earlier schemes.

Impact indicators

As Bernhard and Wolff (2011) note, between 119,000 and 147,000 recipients of unemployment benefit enrolled annually in the GZ scheme between 2007 and 2010. The research does not present any evidence on the scheme’s effectiveness in reducing UDW or its cost benefit ratio. Caliendo et al (2011), however, present some evidence on the survival rate of GZ participants’ businesses: 19 months after their start-up, 75%–84% of former GZ recipients were still in business.

Transferability

The scheme is not easily transferable to other systems due to the peculiarities of Germany’s welfare system and its active labour market policy.

Contacts

Content: Sandra Vogel, IW Köln: http://www.iwkoeln.de/de.

Bibliography

Bernhard, S. and Wolff, J. (2011), ‘Förderinstrument im SGB III. Der Gründungszuschuss aus Sicht der Praxis’ [‘The start-up premium from a practical perspective’], IAB Kurzbericht, No. 22.

Boockmann, B., Dohrn, R., Groneck, M. and Verbeek, H. (2010), Abschätzung des Ausmaßes der Schwarzarbeit. Eine Untersuchung im Auftrag des Bundesministeriums für Arbeit und Soziales [Estimation of the extent of undeclared work: An analysis on behalf of the federal Ministry of Labour and Social Affairs], Tübingen/Essen.

Bundesrechnungshof (BRH) (2008), Bericht nach § 99 BHO über die Organisation und Arbeitsweise der Finanzkontrolle Schwarzarbeit (FKS) [Report on the organisation and operation of the Tax Enforcement Unit for Undeclared Work according to Article 99 of the Federal Budgetary Regulations].

Bundesrechnungshof (BRH) (2011), Bericht nach § 99 BHO über die Steuerermäßigung für haushaltsnahe Dienstleistungen und Handwerkerleistungen nach § 35a EStG [Report by the Federal Audit Court on tax reductions for services related to household activities and tradesmen’s services].

Caliendo, M. et al (2011), ‘Alte Idee, neues Programm. Der Gründungszuschuss als Nachfolger von Überbrückungsgeld und Ich-AG’ [‘Old idea, new measure: The start-up premium as successor to the “bridging grant” and “Me PLC”’], IAB discussion paper no. 24, German Federal Employment Agency, Nürnberg.

Deutsche Bundesregierung (2009), Elfter Bericht der Bundesregierung über die Auswirkung des Gesetzes zur Bekämpfung von Schwarzarbeit – BillBG.

Feld, L.P. and Larsen, C. (2012), Das Ausmaß der Schwarzarbeit in Deutschland, University Press of Southern Denmark, Odense.

Gottschall, K. and Schwarzkopf, M. (2011), Legal and institutional incentives for undocumented incentives in private households in Germany, Hans-Böckler-Stiftung, Düsseldorf.

Schneider, F. (2007), Reducing the shadow economy in Germany: A blessing or a curse?, Discussion Paper, Department of Economics, University of Linz.

Schneider, F. (2009), ‘Size and development of the shadow economy in Germany, Austria and other OECD countries: Some preliminary findings’, Revue économique, Vol. 60, No. 5.

Sandra Vogel, Cologne Institute for Economic Research, IW Köln

 

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