Labour Market Reform in Germany and Sweden

Table of contents

1. Inroduction

2. Labour Market Reform in Germany
2.1. Recent developments
2.2 The CAST programme
2.3 The Job-AQTIV Act
2.4 The Hartz Concept and its implementation process

3. Labour Market Reform in Sweden
3.1 The decentralisation programme
3.2 IFAU

4. Conclusion

5. References

1. Introduction

Public discourse around the topic of unemployment in Germany affects more people than ever. It is one of the top ten topics that receive permanent coverage by public and private news media. Several most recent surveys have shown that a large share of the German labour force is afraid of losing their jobs.

Worse than that, the scandalous discovery of faulty placement statistics published by the German Federal Labour Office (“Bundesanstalt für Arbeit”, a federal body in charge of administrating unemployment in Germany), palliating its successes on placement of unemployed people, caused serious political damage and lead to public mistrust in the federal government’s (comprised of social democrats and greens) competences in labour market policies in early February 2002.

Many a time, European countries such as the Netherlands, the UK and the Nordic countries are referred to when analysing strategies on how to cope with unemployment in Germany.

In this essay, I shall provide a brief overview over labour market policies and their reforms developed and applied in the past two to six years in the countries Germany and Sweden.

2. Labour Market Reform in Germany

According to Calmfors (Calmfors, p. 1), “less generous unemployment insurance, less stringent employment legislation, less of minimum-wage legislation, changes in the framework for wage bargaining, a larger scope for individual wage contracts as opposed to collective agreements, more effective labour-market programmes and education efforts to avoid skill mismatches” constitute the strategies to cope with structural unemployment.

There is common scholarly consent that unemployment in the EU has structural rather than cyclical reasons. However, “the causes of unemployment are diverse and most likely to vary among target groups, geographical regions, as well as over time,” argues Sianesi (Sianesi, p. 4).

When writing this paper, 3.94 million people, or 9.5% (8.3% according to the OECD) of the labour force in Germany, were registered as unemployed and received financial support, education, consulting services or training programmes from the federal government.

The measurement of unemployment in the countries discussed varies widely: The Swedish and German National Labour Offices (“Arbedsförmedlingen” and “Bundesanstalt für Arbeit”) apply their own rules in the creation and evaluation of labour market statistics. Thus, the unemployment rate differs from the one obtained by Eurostat or the OECD, international bodies which use methods very similar to each other since they also integrate micro-census results into their statistics. That is why the unemployment rate measured by the German National Labour Office e.g. is always roughly 1% to 1.5% higher.

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2.1. Recent developments

After the German Federal Court of Auditors had discovered irregularities comparing placement statistics created by five Local Labour Offices with statistics from the Federal Labour Office, it had published its critique in one of its reports on 6 Feb. 2002. The Court had found out that up to 70% of the placements issued in the federal statistics were faulty as the Court applied a different method of measuring placement success in its internal audit of Local Labour Offices. In some cases, an unemployed person simply printing a job offer at one of the local computer terminals was regarded as being successfully placed by some Local Labour Offices.

The news media, being kept alert by rising unemployment rates, as always during the winter, when unemployed was higher, caught momentum in reporting about the case.

The resulting public debate and the soon-to-come national elections to the Bundestag urged Chancellor Gerhard Schröder to get rid of the problem of unemployment which seemed to be paralysing the whole country more than ever. After appointing a new chairman for the Federal Labour Office, he delegated the task of analysing and assessing possibilities of labour market reform to an expert commission of 15 renowned scientists, politicians, civil servants, trade unionists and employers.

Peter Hartz, head of Human Resources at Volkswagen, who had introduced the 4-day-week at the Wolfsburg-based car manufacturer and had thus saved 5000 jobs, chaired the commission which was destined to be called the Hartz Commission by the news media.

But even before the Hartz Commssion got to work after it was formed on 22 February, 2002, several labour market reform measures had been taken, however without much notice of the public.

2.2 The CAST programme

CAST stands for “Chancen und Anreize zur Aufnahme sozialversicherungspflichtiger Tätigkeiten” (Chances and Incentives for Taking Up a Full-Time Job). It represents the application of two different instruments to co-finance labour cost, especially expenses on social security by contributing federal and regional government monies to local wages. The CAST programme is supported by the federal government since July 2000.

In addition to this, two regional programmes have emerged; they are both administered on the Länder level.