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Germany

Ten years on, Hartz labor reforms aid Germany

Ten years ago, a VW executive and advisor to former Chancellor Schröder presented a set of measures to reduce German unemployment, triggering wide-ranging reforms of the German welfare system that remain controversial.

To some in Germany, it is the most successful labor market reform ever. To others, the Hartz IV reforms stand for nothing but mistrust, state control and harassment.

Ten years ago, on August 16, 2002, a commission named after and headed by Volkswagen manager Peter Hartz, presented a blueprint for modern labor market policies. "I want to make it very clear that I will make every effort to use all the instruments we have at our disposal from this day on," said Germany's  then-Chancellor Gerhard Schröder.

Compared to 2.8 million unemployed in Germany today, more than 4 million people were jobless in 2002. The labor market system urgently needed to be revamped.

"We won't experience a grand miracle of hundreds-of-thousands of new jobs; we can only reach that goal with 'ant policies,'" Peter Hartz said. "We have to look after every single jobless person."

Rebuilding the welfare state

The proposals, named Hartz I to Hartz IV, became part of the German government's "Agenda 2010" series of reforms. The goal was to rebuild the welfare state from the ground up and allow it to stand stronger in times of labor market crises.

Reforms I and II were aimed at facilitating the creation new kinds of jobs. Unemployed entrepreneurs could apply for state-funded grants and jobs with lower insurance and tax payments. Job centers were restructured, the Federal Labor Agency was modernized, and it became mandatory to give notice immediately when a job was terminated.

Peter Hartz (Photo by Sean Gallup/Getty Images)

Peter Hartz, the architect of the reforms

Some of the reforms failed, Holger Schäfer of the Cologne Institute for Economic Research (IW) said, for instance staff service agencies (PSA), established at every local job center and designed to hire jobless people and temporarily "loan" them to companies.

"Grants for entrepreneurs were also not very successful, the project was dropped relatively quickly," Schäfer said. But, he told DW, these measures gave people an incentive to start to work again.

Jobless figures decline

Shortening the period of time an unemployed person can receive benefits was also an incentive to find a job as quickly as possible, Schäfer said. He pointed out the wisdom of pooling benefits for the long-term unemployment with welfare benefits -  the core of the Hartz IV reform. Unemployment in Germany has dropped radically because of the reform, the economic expert said, adding there are still too many long-term unemployed who lack qualifications.

One concept common to all the Hartz reforms was that the state would assist and sponsor the unemployed, but they have to be active, too. Schäfer urged job centers to take that concept to heart: "Job centers should not leave recipients of unemployment benefits to their own devices for months on end. They have to be mobilized. That might help even tough cases integrate into the labor market."

Mass protests against Hartz IV

Demonstrator with placard and whistle (AP Photo/Roberto Pfeil)

Demonstrators protest the new regulations

"Social indifference" and "devil's work" - for months, the jobless, unions and members of charitable organizations took to the streets in protest of the sharp cut in unemployment benefits from almost three years to one year, and the complete cancellation of unemployment assistance, which was incorporated into Hartz IV welfare payments. Ten years later, criticism of the reform continues, and courts nationwide still face numerous complaints.

Dropping out of employment and into the world of Hartz IV recipients is still a bitter experience for those concerned. The welfare state no longer safeguards people's standard of living but merely their living expenses. Long-term unemployed no longer receive state benefits according to their previous wages but according to their needs.

Watch video 03:24

Decade later, Hartz IV still divides Germans

All the same, many economists argue the reforms introduced ten years ago are the foundation of Germany's present labor market situation and the reason the German economy still prospers despite the euro crisis.

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