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Germany

Labor Market Reforms Spelled Out

Germany's parliament votes on October 17 on labor market reforms that critics say will lead to painful cuts for people in and out of work. Deutsche Welle explains what they are.

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Unemployment office in Berlin: Chancellor Schröder hopes reforms will cut down on jobless.


Economists and business leaders have lamented for years that Germany's labor market regulations are hopelessly out of date and do little to halt the skyrocketing unemployment rate -- currently at 4.3 million. The ruling coalition of Social Democrats and Greens started taking steps last year to change that. The Hartz Commission, a committee headed up by Volkswagen CEO Peter Hartz and affiliated with the SPD, proposed the first widespread job reforms. Some of them have already been implemented while others are still waiting to pass through parliament. All are part of Chancellor Gerhard Schröder's ambitious Agenda 2010 package of social and economic reforms, designed to kickstart the moribund economy.

On October 17 the German parliament will vote on the labor market reforms. If the Bundestag approves them, they will be sent to the Bundesrat -- the second chamber of parliament representing Germany's federal states -- for endorsement before becoming law.

"It is high time for the reforms, and we cannot and we must not allow the situation to worsen," Wolfgang Clement, Germany’s Minister for Economics and Labor, has said of the biggest overhaul of the labor market to hit Germany in a while.

Here's a brief guide to the changes that have been implemented so far and those waiting for approval:

Jobless benefits limited to one year

Starting in 2006, the unemployed will be able to claim benefits for 12 months, and those above age 55 for 18 months. Until now those without jobs have been able to claim unemployment benefits for 32 months. Clement and other labor market experts have criticized the generosity of the current situation, which has not infrequently been abused by companies who had convinced older employees to take early retirement, register themselves jobless and collect unemployment benefits until they could receive pensions at 60, the earliest legal retirement age.

Job protection relaxed

Firms with up to five employees will be freed from job protection regulations. They will be allowed to hire up to five people either on a temporary or permanent basis without facing restrictions preventing them from firing workers. By loosening the laws for small businesses, the government hopes to encourage companies to hire more people.

Self-employment subsidized

Back in January the government passed a new law called the "Ich AG" (roughly translated, "Me Inc.") designed to make it easier for people to become self-employed. Whoever is unemployed may apply for financial support for three years while starting up a business.

Tax-free income limit raised to €400

"Mini" jobs that previously paid €325 per month can up that sum to €400 since April 2003. The tax-free jobs are also no longer restricted to 15 hours per week, and non-wage labor costs are significantly lower than normal.

Unemployment benefit restructured

One of the heftiest criticized reform proposals is the restructuring of long-term unemployment benefits. The Hartz Commission has called for rolling unemployment and social welfare benefits into one program to support people who have been without a job for more than 12 months and are still capable of working, i.e. those who fall under the legal retirement age. Up to now the two benefit systems have existed separately, with the federal government being responsible for unemployment payments and local authorities for social welfare.

"Unemployment benefit II," as the reform has been dubbed, will be set at the level of social welfare benefits, which is significantly lower than current unemployment benefits based on a percentage of the previous earned income. The government hopes to cut costs by only having one type of welfare benefit. The question of setting the level of that benefit, however, is still a point of discussion for the Social Democrats and the opposition Christian Democratic Union. The conservative CDU has argued that the long-term jobless should be forced to get off the dole and work, and that by lowering their benefits they would be encouraged to take a job. But the left-wing faction in the SPD has criticized the lowering of unemployment benefits, saying that no one should be forced to take a job significantly below his or her skill level.

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