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Business

Report Slams Controversial German Job Market Reforms

A controversial raft of labor market reforms to stem Germany's double-digit unemployment rate is not working and in some cases is aggravating the problem, a new report shows.

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No amount of tweaking, it seems, helped the so-called Hartz labor market reforms

A government-commissioned study gave the so-called Hartz reforms, rolled out in 2003 and 2004 under former Chancellor Gerhard Schröder as the centerpiece of his battle to combat joblessness, a dismal report card.

The study, weighing in at several thousand pages and obtained by business daily Handelsblatt, found that many of the reforms were costly, ineffective and fell wide of the mark in tackling the structural problems in the German labor market.

Miserable card for PSAs, mini-jobs

The study by several leading economic think tanks ordered by the federal government was particularly critical of one of the major planks, the introduction of "personal service agencies."

Arbeitsamt Kassel

The latest report is bad news for Germany's jobless


The so-called PSAs "hire" the jobless and "lend" them to companies in the hope the companies would eventually offer them jobs.

The report found that the program in fact lengthened the amount of time a person was unemployed by an average of one month and created additional costs of 5,700 euros ($6,800) per person.

Efforts to make the hiring of older workers more attractive were also entirely ineffective, the report found, and a "minijob" program to create low-wage, part-time positions did little to pave the way toward full employment.

Training programs, government salary subsidy programs and state job creation measures also proved a disappointment in driving down unemployment, which is consistently listed by Germans as the number-one national problem.

The one silver lining came from programs to foster small business start-ups. "As a whole, the programs can be seen as successful in averting the return to unemployment," the study said.

Opposition feels vindicated

The study has provided the opposition free-market liberal party (FDP) with fresh ammunition to attack the government's labor market reforms.

"I feel vindicated in my criticism of the reforms," Dirk Niebel, general secretary of the FDP said.

Niebel pointed out that the FDP had consistently opposed the reforms right from the outset. He criticized the PSAs as state-financed, unfair competition for private part-time companies, urging the government to completely scrap the measure.

Criticism was also evident in government ranks with the conservatives, who are currently in a coalition with the Social Democrats, saying the study had confirmed their misgivings about certain aspects of the reforms.

"Particularly when it comes to the PSAs, we completely share the criticism," Ralf Brauksiepe, labor spokesman for the Christian Democratic parliamentary group told Berlin daily Der Tagesspiegel. "The instrument isn't fundamentally wrong, but introducing it in such a widespread manner was a mistake."

Schröder paid dearly

Schröder paid a heavy political price for the Hartz package of reforms that were often praised as courageous by economists and foreign leaders.

However, the final and most contentious plank -- measures slashing unemployment benefits for the long-term jobless -- has not yet been studied.

Even without the definitive statistics, the German population seems to have made up its mind about what it thinks of the reforms. In a recent survey, 82 percent said that the reforms had widened the gap between rich and poor. In former communist eastern Germany, 90 percent echoed the view.

Bundeskanzler Gerhard Schröder (l) winkt am Freitag (01.07.2005) in Berlin beim Verlassen des Plenarsaals Bundesfinanzminister Hans Eichel (r) und Bundeswirtschaftsminister Wolfgang Clement zu.

The Hartz reforms were the centerpiece of Schröder's reform agenda


Schröder lost a humiliating series of state elections in the measures' wake, and was finally defeated as chancellor by Angela Merkel in an early general election in September.

Merkel's new "grand coalition" government comprising her Christian Democrats and Schröder's Social Democrats has agreed to review all the labor market measures by the end of 2006.

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