Young workers to substitute for older employees

In July 2009, the Federal Minister of Labour and Social Affairs proposed extending the partial retirement scheme for older employees run by the Federal Employment Agency for another five years. Employers retaining a successful trainee or recruiting a new trainee are to be supported by the scheme. The minister argued that older and younger employees could thus be protected from unemployment during the current economic crisis. However, the proposal sparked a heated debate among the social partners.

Content of proposal

On 30 July 2009, the Federal Minister of Labour and Social Affairs, Olaf Scholz, suggested prolonging the partial retirement scheme (in German) for older employees run by the Federal Employment Agency (Bundesagentur für Arbeit, BA). BA’s programme referred to by the minister grants financial support to companies for the gradual transition of employees aged 55 years and over to retirement. For this, however, certain conditions must be fulfilled. Employees must reduce their working time to 50% of their average working hours. Moreover, the resulting vacancy or remaining working hours must be filled by a newly recruited, previously unemployed person or trainee.

If the employer increases the pay of older employees in the scheme to 70% of their previous full-time pay and continues to make contributions to their pension schemes calculated on the basis of at least 80% of their previous full-time pay, additional expenses are borne by BA for up to six years. These regulations must be implemented on the basis of a collective agreement, a works agreement or an individual contract between the employer and employee (DE9710133F, DE9708224F).

It should be noted that the parties to the employment contract decide how the working time is to be distributed over the years until retirement. Research findings (in German, 767Kb PDF) from the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) show that, in 2007, about 88% of older employees availing of the partial retirement scheme organised their working time in a block period. For example, instead of working reduced hours for the whole contract period, they worked full time in the first half of the contract period in order to be released from work completely during the second half of the period.

The current programme is due to be phased out by the end of 2009. Minister Scholz believes that, during the current economic crisis, taking on new trainees or retaining trainees who had successfully completed their vocational training should become less of a burden for employers as a result of BA’s programme for another five years, until 2014. He emphasised that his proposal was intended to protect younger workers as well as older employees from unemployment.

Reactions of social partners

Employer position

  • a press statement (in German) on 27 July 2009, the Employers’ Associations for the Metal and Electrical Industry (Arbeitgeberverbände der Metall- und Elektroindustrie, Gesamtmetall) rejected the federal minister’s proposal. On 30 July, Gesamtmetall insisted that the majority of older employees opting for ‘partial retirement’ are choosing to complete their working time in a block period, thus working full-time hours for an initial period. As a result, those workers entering the partial retirement scheme in 2010 would in fact not reduce their working time before 2013. This means that a vacancy for a younger worker will only be created at that time. Gesamtmetall therefore argues that a prolongation of the partial retirement programme would not relieve the pressure in the labour market in the short term.

In addition, Gesamtmetall believes that the extension of the scheme would yield negative effects, with BA having to shoulder further costs. The institution’s financial situation is, however, already strained by the difficult situation in the German labour market at present. The pressure to increase the level of contributions to the statutory unemployment insurance would rise. Unless resisted, this pressure would in turn add to an extra burden for employers and employees alike, thereby hindering Germany’s economic recovery.

Finally, Gesamtmetall highlighted the fact that Mr Scholz’s proposal would jeopardise simultaneous endeavours to retain older workers in employment. Although the current economic crisis might soften the imminent shortage of skilled labour, companies would nonetheless be dependent on the skills and knowledge of older employees in only a few years time. In an ageing society, older employees would be needed to help with the restructuring of companies as well as to foster further innovation.

Trade union position

In contrast, the German Metalworkers’ Union (Industriegewerkschaft Metall, IG Metall) welcomed Minister Scholz’s proposal. In a press release (in German) on 27 July, the trade union called for the prolongation of BA’s scheme before the general parliamentary election in September 2009. The Chair of IG Metall, Berthold Huber, stated that, given the current tense labour market situation, every effort should be made to avoid redundancies. Mr Huber argued that extending BA’s programme was a necessary step to allow older employees to leave the labour force, thus offering young workers a chance to start their careers.

Mr Huber insisted that public subsidies for the partial retirement scheme must be conditional: every older employee enrolled in BA’s programme should be replaced by recruiting or retaining a trainee after completion of his or her training. Finally, he emphasised that the partial retirement scheme is an effective labour market instrument and should therefore be promoted. He argued that its rejection by employers and the Christian Democratic Union (Christliche Demokratische Union, CDU) was not helping the situation.

Reference

Wanger, S., Altersteilzeit. Beliebt, aber nicht zukunftsgerecht [Partial retirement. Popular, but not future-proof], in IAB-Kurzbericht, No. 8, 2009.

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

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