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Welfare overhaul

Anne Allmeling / gswMarch 11, 2013

Less support for the long-term unemployed, cuts in the health care system, a higher retirement age: "Agenda 2010" was Germany's biggest social reform package in the post-war era, but its effectiveness is disputed.

Young people stand in front of a job board +++(c) dpa - Bildfunk+++
Image: picture-alliance/dpa

Economist Hans-Peter Klös has no doubt that Germany's unemployment rate is much lower today than ten years ago - and that the improvement can be attributed to reforms known as the Agenda 2010.

"We don't come in at the bottom anymore of international rankings - instead, we're in the top third," said Klös, the head of educational and labor policy at the Cologne Institute for Economic Research (IW). "That means that people elsewhere in Europe look to Germany and ask themselves: How could that have gone so well?"

Reconfiguring social welfare

Klös is far from the only one who views the reforms as a success. This week, many prominent politicians are praising the Agenda 2010 package, which was first proposed in German parliament in mid-March one decade ago. Behind the deceptively simple name was a concept for reforming social welfare programs in Germany as well as the country's labor market. The starting point came on March 14, 2003, with a speech in parliament by then-Chancellor Gerhard Schröder (SPD), who said, "We will have to limit the state's contributions, promote personal responsibility and demand more initiative from each individual."

In concrete terms that meant raising the federal retirement age by two years to 67, requiring higher contributions for health insurance and combining unemployment aid and welfare into a single category known as Hartz IV. The plans unleashed heated debates, not least among Schröder's governing Social Democratic Party.

Young people sit outside and study in Demmin Photo: Jens Büttner
The city of Demmin has an unemployment rate among the highest in GermanyImage: picture-alliance/ZB

For many of Germany's unemployed, Hartz IV translated into less support from the state. The standard welfare rate under Hartz IV is 382 euros ($497) per month in addition to rent and heating costs. Those who accept the support payments must also make regular trips to government labor offices and may be forced to accept menial job placements. That requirement has prompted dissatisfaction among the experienced skilled workers who have faced long-term unemployment, particularly in parts of the country with weaker economies.

Boosting the low-wage market?

Agenda 2010 continues to have its share of detractors, however. Among them is Ulrich Schneider, the managing director of the Berlin-based non-profit, Association for Welfare Parity. Schneider views Agenda 2010 and the introduction of Hartz IV in particular as negative developments.

"Hartz IV has led to the situation that we have an unusually large low-wage sector in Germany," Schneider said in an interview with DW. "Today, nearly one fourth of those who are privately employed work for an hourly wage below 9.15 euros - on average, in fact, for 6.60 euros per hour. Those are the consequences of Agenda 2010."

Frank-Walter Steinmeier, the head of the opposition in Germany's parliament, has admitted that Germany has a high proportion of low-paid workers. As Schröder's chief of staff, Steinmeier had a decisive role in shaping the Agenda 2010 package. But the SPD politician remains convinced that the reforms prevented Germany from economic downfall.

"If Schröder had governed with as little courage back then as Angela Merkel today, then we would be facing significantly bigger problems in the euro crisis, right alongside Italy, France and Spain," Steinmeier said in an interview with the German daily "Süddeutsche Zeitung."

Another point of contention for Agenda 2010's detractors is whether the reforms can be credited with lowering German unemployment. It is, however, evident that the number of unemployed people in Germany has fallen dramatically in the last seven years. More than five million people were unemployed in 2005, while just three million were out of work in 2012. Most experts agree, though, that improvements are needed when it comes to Germany's low-wage sector.

A demonstrator protests against the cuts associated with Hartz IV (AP Photo/Roberto Pfeil)
A demonstrator protests against the cuts associated with Hartz IVImage: picture-alliance/dpa