Introduction of Personnel Service Agencies in Germany (A ressource based SWOT-Analysis)

Table of Contents

Table of Figures

Introduction - The crash of a system

Summary

The Situation today

Key principles of Personnel Service Agencies (PSA)
Model of operation
Aims of PSAs
Organisation of PSA
Legal implications
Stadium of implementation

Foreign precedences

Method of analysis
Concept
SWOT analysis
Resource based view
Competitive Forces Paradigm
The Value Net
Adaptation to PSAs
Questionnaire design
Execution

Findings

Agreement with the concept
Strengths
Weaknesses
Opportunities
Threats

Conclusion
Resource based view
Comparative Forces Paradigm
The Value Net

Outlook

References

Apendix

Table of Figures

The 13 Modules of the Hartz-Commission

Federal Republic of Germany - Unemployment Rates

Personnel Service Agencies - Organization

PSA-Job Centre-Relation

Resource based SWOT-analysis

Resource based SWOT-analysis - First adaption to PSAs

Resource based SWOT-analysis - Final Adaption to PSAs

Introduction - The crash of a system

It started on 06th of February 2002 with headlines in all major newspapers in Ger- many. The German Federal Audit Office demanded the highly centralized Federal Agency for Labour (Bundesanstalt für Arbeit) in Nuremburg revise their statistics (Anonymous, 2002a; Anonymous 2002c; Anonymous, 2002d; Baulig C. et. al., 2002). According to the audit office report 70 per cent or 2.7 million of the successes in the mediation of employment were faked (Kogelfranz, 2002). The agency, with its 90,000 employees, turned out to be one of the most inefficient but most expensive agen- cies of that kind in Europe. After a couple of days the president of the agency Bern- hard Jagoda resigned under the pressure of the federal government and Chancellor Schröder. His successor Florian Gerster was told to reform the mammoth-agency.

Meanwhile the German government realized that the whole system of labour mediati- on had become both too inefficient and too costly. So, among other things Chancellor Schröder hired Dr. Peter Hartz to head a commission which should work out soluti- ons for a new German labour market model. The former Volkswagen (VW) executive and his commission rolled out a concept of 13 modules of innovation (see Figure 1) in July 2002. This concept called “Modern Services on the labour market” followed the premise of enabling the unemployed to participate actively in their attempt to get a new job (Hartz-Commission, 2002b, p.19). That means, on the one hand, to lower barriers for people who like to show self initiative but were blocked by complicated labour and tax laws. On the other hand self initiative should become a duty and unemployed people who do not show enough commitment in their struggle for a new job will have to face dole-cuts. Also in order to set incentives for companies to hire from the ranks of the unemployed, the commission suggested removing some sacred cows of employee protection.

Among those 13 modules, the temp-work module may be the most interesting for companies. According to Hartz’ suggestions each local branch of the labour agency has to provide a temp agency called “Personnel Service Agency”, too. These agen- cies will be run like private companies but there temp workers are recruited from the ranks of the official unemployed. Labour mediation in that way is without any prece- dence in Germany. That leads to the interesting question which strengths and weaknesses those temp agencies may have and what external opportunities and threats are provided by the economic environment?

Summary

This work starts with a brief summary of about the situation of the German labour market. After that Personnel Service Agencies are introduced. First their modus operandi will be discussed, followed by their aims and organisation. Finally the legal implications will be examined, before the current situation of these agencies ends the outline.

The next part of the text deals with the resource based SWOT-analysis which forms the model of evaluation. The contents and sub-models are discussed and also the necessary alternations concerning PSAs are mentioned.

The third part consists of methods and findings divided into strengths, weaknesses, opportunities and threats, before the last part deals with conclusions and a brief out- look.

The Situation today

Today Germany suffers from a disequilibrium which affects different markets and especially the labour market. This disequilibrium was caused by reunification and external shocks during the 1990s (OECD, 2002). Unfortunately German authorities were not able to react quickly enough on these problems. Hardened bureaucratic structures made it especially impossible to battle the rising unemployment rate. There were even not enough incentives for the unemployed to get proactive and look for new possibilities of employment. People who managed to keep their occupations were squeezed with higher and higher taxes. Until now structural deficits have be- come urgent enough to initiate major reforms within Germany (OECD 2002). This need for reforms and the unique structure of post reunification Germany with its large differences in employment (see Figure 2) make the country an excellent target to stu- dy the effects of different employment programs and probably precedence for other countries which are looking for opportunities to cut down their unemployment rate.

Key principles of Personnel Service Agencies (PSA) Model of operation

PSAs use a very similar model of operation like regular private run temporary employment agencies. Temp workers are rented out to customer companies which pay a fixed fee for his work.

Like other temp agencies the PSA-worker has an employment contract with the PSA and not with the customer company and he receives his salary also from the PSA (see Figure 3).

Like other temp agencies PSAs try to transfer their workers to the customer compa- nies, but here the state pays the transfer fee instead of the customer company. Like other temp agencies PSAs pay the normal collective bargained wages. Unlike other temp agencies all PSA temps are recruited from the ranks of the officially unemployed. PSA employment contracts last at least 9 months and not more than 12 months. The Hartz concept determines strong incentives (e.g. to cut the dole) to persuade potential temp workers to be employed by a temp agency.

Aims of PSAs

PSAs are supposed to lower physical as well as psychological barriers of regaining a job. Technically the members of a PSA are not unemployed. They are employed and benefit from the regular social insurance, which by the way keeps them out of unemployment statistics. More important working in PSAs may prevent psychological problems which occur when the normal daily routine of the former employee suddenly disappears. To have nothing to do the whole day can cause serious depressions and isolation. That’s why Hartz-Commission recommends that PSA temps receive job-training during periods with no occupation in a customer company.

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Second PSAs aim to lower the customer companies’ risk of employing a not really suitable person. The Hartz-concept describes it with the de facto elimination of job security laws by keeping their benefits for the employee (Hartz-Commission, 2002b). He or she stays employed and with the PSA and will be subsidised even when the customer company refuses any further employment.

Organisation of PSA

PSAs will be located within governmental run job centres. They will be an own busi- ness unit within those centres (see Figure 4). When ever possible those PSA should

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be run by a private operator. A joint venture (public-private-partnership) between the local job centre and a private operator may be the second choice. In areas where no private operator can be found the job centre will act as entrepreneur and build up the PSA as a subsidiary. This cooperation between private and public sector is supposed to help preventing the inefficiencies from which state administration and state-run companies normally suffer.

Legal implications

The introduction of the PSA implicates the removal of the following federal labour regulation laws (Clement, 2002):

- The ban of repeated fixed-duration-contracts without a causal reason within the person of the temporary employee (Ban on repeated fixed-duration-contracts)
- The ban on repeated lay-offs and reemployment before the end of the first three months of contract (Ban on repeated reemployment).
- The ban of the repeated “first-time-duration-contracts” between temp agency and custom company (Ban of Synchronisation).
- The limitation to hire a single temp worker for longer than 24 months without taking him or her over to a first-labour-market contract.

The abolishment of those laws is supposed to bring more flexibility into the temp agency market. On the other collective bargaining agreements will also apply to PSA employees to prevent any distortion of competition between the PSAs and regular private run temp agencies.

Stadium of implementation

The procedure to establish PSAs in all 16 federal states has started on 03.01.2003. Labour authorities believe that the foundation process will be completed during the year (Federal Labour Agency, 2003a). Until then at least one PSA had to be establis- hed in every job centre within Germany. Government and Federal Labour Agency are convinced that approximately 50,000 employees will work in PSAs at the end of the year.

Foreign precedences

Until that time PSAs will have had no real precedence within the European Union. In no other EU member-country the government tried to introduce temp agencies as a supplement in labour mediation. Other countries e.g. The Netherlands and Ireland rely on part-time work (Tille/Yi, 2001) which is more common in Europe than temp work. Also some authors (e.g. Ge Grip et al, 1997) see even more potential in part- time work than in temp work to reduce the unemployment rate. However this is only true for some countries like The Netherlands, while Germany, France, and others faced a rising rate of part-time work and of the unemployment rate (Ge Grip et al, 1997). By using a temp work model Germany does not follow the European trend towards the easing of part-time jobs. That means a comparative study is not possible in this case and another approach had to be taken to analyse the strengths, weaknesses, opportunities, and threats (SWOT-analysis) of PSAs.

Method of analysis

Concept

Personnel service agencies will be analysed in this text by using Valentine’s (2001) framework of a SWOT-analysis based on resource based view. The majority of normal SWOT-analyses use checklists to extrapolate the strengths and weaknesses of the particular company. Although they produce correct results Valentine believes that those analyses are only a spotlight on the current situation and so maybe shortsighted. This spotlight unfortunately does not provide enough information to evaluate which factors are key-factors and which are peripheral. Also you cannot say for sure whether a comparative advantage is sustainable or temporary.

A complementary tool has to be used to analyse the found strengths, weaknesses, opportunities and threats (SWOTs). Valentine’s resource-based SWOT framework will curb that problem. The concept is based on the resource based view of a company (Barney, 2001, p.149ff.). Also there are influences of Porter’s (1998, p.4) competiti- ve forces paradigm and the pretty similar value net of Brandenburger and Nalebuff (1995).

SWOT analysis

The core of Valentine’s concept is a normal SWOT-analysis (see Figure 5). According to Kotler (1999) those analyses evaluate the internal and the external environment of a company in 2x2-matrix. The internal environment represents strengths and weak- nesses the company has. The analysis is not a tool for disposing all threats or taking advantage of all strengths. But it is important for companies to know about them.

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