Activating Labor Market and Social Policies in Germany: From Status Protection to Basic Income Support

German Policy Studies › Vol. 6 Nbr. 1, January 2010

Author: Eichhorst, Werner

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Summary

This paper provides an overview of the sequential shift towards activating labor market and social policy in Germany. It not only shows the changes in the instruments of active and passive labor market policies but also analyzes the implications of this change for the political economy and the legal structure of a "Bismarckian" welfare state. Our study points at the changes in Germany's status- and occupation-oriented unemployment benefit regime that has been relinquished for a larger share of benefit recipients. Unemployment insurance benefit duration is shorter now and newly created basic income support for needy persons is not earnings-related anymore. Pressure on unemployed to take up jobs has increased considerably while more persons than before have access to labor market programs and individualized services.

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Activating Labor Market and Social Policies in Germany: From Status Protection to Basic Income Support

1 Introduction

Although Germany has a long-standing reputation as a passive welfare state with elaborate schemes of status-protecting income replacement through social insurance in case of unemployment and a full-blown system of active labor market policies, all bene-fit systems had formal elements of activation and work require-ment-but they had not been enforced systematically. In recent years, however, reforms of active and passive labor market poli-cy were implemented in Germany in order to create a more acti-vating labor market and social policy regime and awake dormant activation principles. Changing the system of unemployment in-surance benefits and basic income support as well as the reper-toire of active labor market policy instruments and making bene-fit receipt more conditional upon job search and acceptance of job offers was a major issue on the political agenda. This led to a system shift away from "Bismarckian" status-protecting benefits towards a more "Beveridgean" model of income support with strong activation requirements. In the realm of unemployment benefits the dominant regime is no longer a social insurance ben-efit but a means-tested flat-rat transfer. The reform of the benefit system also involved a major overhaul of the governance of labor market policy and has far-reaching implications for the logic of the German welfare state. All these reforms generated considera-ble public attention and interest from foreign observers. This ar-ticle provides an in-depth account of the institutional change, its practical implementation and mid-term outcomes and assesses if the desired economic and societal objectives of activation could be achieved through the adopted reforms.

2 The Shift towards Activation

The Legacy of a Conservative European Welfare State

The German welfare state is typically depicted as the prime ex-ample of the conservative welfare regime, for which the preser-vation of social status is central (Esping-Andersen 1990). It has also been prominently characterized as a "frozen welfare state" highly resistant to change (Manow and Seils 2000). Facing a dif-ficult economic environment since the mid-seventies, policy makers and social partners used active and passive labor market policies to reduce labor supply by taking "surplus labor" out of the labor market and shifting the unemployed to benefit schemes and active programs that were not effectively oriented towards swift reintegration into the labor market (Manow and Seils 2000). For some decades, active and passive labor market poli-cies provided a "convenient" and "socially acceptable" way of subsidizing entrepreneurial adjustment to dynamic global mar-kets and help stabilize competitiveness of manufacturing that was at the core of the German employment system (Streeck 1997) while at the same time facilitating a "social policy" approach to unemployment emphasizing income protection and "benevolent" treatment through active policies. Availability of rather generous insurance-based social benefits related to labor market status and skills in the tradition of a "Bismarckian" model helped limiting income inequality and wage dispersion. Rather than creating a flexible and more inclusive labor market, the institutional ar-rangement of the German labor market of the eighties and nine-ties was conducive to limiting low-wage employment and wage i...

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