Employers call for reform of law on unemployment assistance

Although the federal government recently introduced amendments to the so-called HARTZ-IV law on modern services in the labour market, the Confederation of German Employers’ Associations has called for an extensive revision of the existing rules in the form of a 10-point proposal put forward in July.

In July 2006, the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA) published a 10-point proposal calling for extensive reforms of the ‘Fourth law on modern services in the labour market’, which is commonly known as HARTZ IV.

On 1 January 2005, HARTZ IV came into effect. It merged the former unemployment assistance (Arbeitslosenhilfe) with the social welfare assistance (Sozialhilfe). In its new form, it is called ‘unemployment benefit II’ (Arbeitslosengeld II, DE0409204N). After a preliminary and tentative evaluation of the effects of the implemented regulations, the federal government recently announced amendments to the law (in German, 179Kb PDF). Although the federal government has already introduced such amendments to HARTZ IV, the BDA has called for an extensive revision of the law’s current content.

BDA proposal for reform

On 31 July 2006, the BDA issued a 10-point proposal that calls for profound reforms of HARTZ IV. With regard to HARTZ IV, the BDA’s proposal states that ‘the intended targets – a lower number of long-time unemployed persons, lower costs for taxpayers and a smaller administrative burden – were missed, because of flaws in the construction of the new social welfare scheme called unemployment benefit II’.

To achieve the abovementioned objectives, the BDA has asked the government to adopt the following measures:

  1. Local authorities should be completely responsible for unemployment benefit II, in order to equip them with the necessary capacity to act.
  2. Any payments provided in addition to the subsistence allowance should be discontinued. They are regarded as an incentive for recipients to avoid paid employment and, instead, to prolong the period for which they receive unemployment benefit payments.
  3. Objective criteria need to be established to define the level of benefit payments. Developments in income levels and in the inflation rate should be taken into consideration when calculating the level of the benefit payments. Payments should be allowed to differ between regions.
  4. The so-called ‘age-58 regulation’ (58er-Regelung) stipulating that recipients aged 58 years or older should receive unemployment benefit II, even if they are not registered as being available for work with their local job service centres, should be discontinued. The existing regulation promotes an early retirement scheme that is subsidised by the social welfare system.
  5. At present, parents have to financially support their children until they reach the age of 25 years. This regulation should be abolished. The full reciprocal maintenance obligation of children and their parents needs to be reintroduced.
  6. The government has to clarify that tax payments should not be used for the establishment of work creation schemes (ABM-Maßnahmen). In particular, long-term unemployed people should be offered jobs that are subject to tax payments and social security contributions.
  7. To control publicly-funded work creation schemes, legally-binding advisory boards consisting of regional employer representatives should be established. Advisory boards and employee representatives should have the right to reject the establishment of new, publicly-funded work creation schemes, if the latter are likely to cause job losses in workplaces that are subject to tax payments and social security contributions.
  8. Recipients of unemployment benefit II and aged under 25 years should receive a job offer: for example, for an internship, an apprenticeship, etc. Only young adults who accept one of these offers should receive the full benefit payments. If they earn low wages as a result of accepting such a job offer, their income should be supplemented by additional payments from unemployment benefit II.
  9. Employees with incomes below a level deemed to be the minimum for subsistence should be able to apply for additional financial support from unemployment benefit II. Although a minimum income should be guaranteed, schemes that top up wages should be managed carefully. If they are not, such schemes may be an incentive for recipients to rely heavily on the social welfare system without trying to earn their own living, or they may result in many forms of employment being subsidised locally.
  10. The Federal Employment Agency (Bundesagentur für Arbeit, BA) currently has to pay a fine to the federal government for each recipient of unemployment benefit I (Arbeitslosengeld I) who could not be placed in a job, and who, as a result, becomes a beneficiary of unemployment benefit II. The BA disburses these fines from its budget consisting of social contribution payments, which is actually supposed to finance unemployment benefit I. The BDA states that unemployment benefit II, although being officially declared as a social welfare benefit, is indirectly financed through the social security contributions of employees and employers. The BDA thus holds that such fines are unconstitutional and should therefore be abolished.

Sandra Vogel, Cologne Institute for Economic Research (IW Köln)

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