Start-up premium, Germany
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.
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.
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.
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.).
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.
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.
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.
The scheme is not easily transferable to other systems due to the peculiarities of Germany’s welfare system and its active labour market policy.
Content: Sandra Vogel, IW Köln: http://www.iwkoeln.de/de.
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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.
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Sandra Vogel, Cologne Institute for Economic Research, IW Köln