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«IZA DP No. 2514 Activation Policies in Germany: From Status Protection to Basic Income Support Werner Eichhorst Maria Grienberger-Zingerle Regina ...»

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This has more fundamental consequences as it signals the departure from status protection and a “benevolent” welfare state to a more basic, means-tested system of social protection and stricter “workfare”. This is not only a result of the abolition of earnings-related unemployment assistance but also due to the associated cut in maximum duration of unemployment insurance benefits for older workers. In empirical terms this becomes evident with respect to the diminishing role of contribution-based and earnings-related unemployment insurance benefits relative to the number of beneficiaries of means-tested basic income schemes.

Basic income for jobseekers, but also means-tested earnings top-up for low-wage earners is now by far the more important benefit scheme than unemployment insurance for short-term unemployed with sufficient prior employment record.

This new arrangements questions the status of lifetime achievement and occupational orientation that was characteristic for the German model of industrial production in the past. On the one hand, this may reduce incentives to pursue professional careers as acquired rights in the social insurance system depreciate more quickly than in the past, and after (accelerated) expiry of unemployment insurance benefits, virtually all jobs are suitable. On the other hand, however, reduced benefit generosity in case of long-term unemployment and even the threat of being transferred to means-tested flat-rate basic income may lead to higher individual effort in order not to lose track of the regular labor market and raise individual job search intensity in case of unemployment. This may even have positive effects on human capital investment. Anyway, the reform reinforces individual responsibility and reduces the possibility to rely on status-oriented benefits and human capital enhancing labor market policies.

Given this broad paradigm shift, acceptance deficits come as no surprise. Cuts in UB I duration, replacing earnings-related unemployment assistance with a flatrate benefit for the long-term unemployed and fears of “enforced” low-wage employment as a result of stricter activation motivated major public unrest before and after the Hartz IV reform came into effect. However, despite a broad public controversy, the long-term implications of this institutional change remain rather implicit. Part of the acceptance deficit can be explained by the lack of a general normative framework developed in order to explain the necessity of these changes and to emphasize the potential of this reform. This may also be partly responsible for reluctant implementation in practice as the implicit normative assumptions are not shared by all actors charged with implementation.

The difficulties experienced with the politics and the implementation of activation in Germany points at more fundamental issues as both policy makers and the general public are very reluctant with regard to a complementary liberalization of the labor market and higher wage dispersion which would help strengthen the supply of entry jobs for the activated. The concept of “work first” may be embodied in current German legislation, yet the idea of “any job is better than no job” still raises widespread opposition. Hence, the question whether a higher degree of inequality is inevitable in the general labor market in order to overcome benefit dependency is still unsolved. Being accustomed to a “high equality, low activity” arrangement, activation of the long-term unemployed and the low-skilled implies a major shift of paradigm. However, at the same time, trying to avoid low-wage employment means tacit acceptance not only of inequality, but also poverty outside the labor market and of inequality between core and margin of the labor market.

With regard to foreseeable future, the German activation regime is most probably not a stable one. One more coherent policy solution implying a general lowering of basic income is virtually ruled out, therefore there is no prominent role for strong in-work benefits (see e.g. Sachverständigenrat 2006).

This is also true for a broad flexibilization of the labor market which would be complementary to this approach inspired by the Anglo-Saxon experience. The public and policy makers are highly reserved with regard to these issues. Social justice consideration might rather result in attempts at stabilizing wages through the introduction of a statutory minimum wage even if this might be detrimental to the labor market integration of the long-term unemployed. Policy makers may even try to resort to a more limited definition of “capability of working” and assign part of the hard-to-place to public sector employment.

We would rather expect future steps to fine-tune the system. Short-term fiscal considerations due to the unexpected inflow into the basic income system led to more restrictive eligibility criteria and stricter sanctioning provisions as early as in summer 2006. Within the next years we might see some changes regarding targeted in-work benefits, a rather restrictive approach towards part-time incentives in the transfer system and a more general revision of administrative competences and funding which would help strengthen incentives for more efficient activation by BA, ARGEn and municipalities. Together with the relative decline of active schemes in the contribution-based system this may eventually lead to the more flexible repertoire of SGB II to become the relevant set of instruments in German active labor market policies. This may help activation without a formal lowering of social benefits.

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