Posted: January 04, 2005

Germany attacks its unemployed!

Australia is not alone in mistreating our disadvantaged and unemployed citizens. As a portent of things to come in Australia after July 2005, tough new labour market reforms came into law in Germany on January 1. The Hartz IU reforms received a bit of European press in the last few days. I read two stories over the last few days, one in the German paper Bild am Sonntag (BamS) under the heading Hartz-IV-Chaos! Kann ich meine Stütze bar abholen? and another from the French daily Le Monde that provided some useful insights into the how a country that refuses to provide enough work for its citizens turns on the same.

The Le Monde article, Reprise lundi en Allemagne de la mobilisation contre la réforme du marché du travail published January 2, 2005 began by saying that after a few months of suppressed protest from the opponents of the reforms the "Les autorités allemandes se préparent à affronter, lundi 3 janvier, un vaste mouvement de protestation contre l'entrée en vigueur de la réforme "Hartz IV" du marché du travail, qui doit entraîner un net durcissement des conditions d'indemnisation des chômeurs." That is, the German authorities are bracing themselves from Monday January 3 for strong protest movement against the introduction of the Hartz IV labour market reforms which will involve a toughening of conditions governing unemployment support.

So what is Hartz IV? Briefly, the reforms introduced by the SPD government combine the unemployment and social welfare assistance schemes into a new integrated unemployment payment with much tougher job search requirements. The worst hit will be around one million long-term unemployed who will face reductions in their benefits. Further, any long-term unemployed person must now accept any offer of legal work and refusal will see complete termination of their assistance. For those who cannot find regular work, not-for profit work at 2 euros per hour has to be accepted. When an applicant for assistance is being assessed their assets are considered as are supplementary incomes. Many people will endure losses as a result of the reforms. Anyone under 25 years has to enter a formal 'integration' contract with an employment agency and if they refuse any training their benefits are cancelled. The Hartz IV reforms were named after the personnel manager of Volkswagen, Peter Hartz, who advised the government on the policy.

The November labour force figures for Germany reported 4.64 million unemployed for an unemployment rate of 10.8 per cent. By modifying the definition of unemployment (to include the current recipients of social welfare support and force them into the labour market) the Hartz IV reforms will generate a huge increase in official unemployment in 2005. Some 380,000 extra people who are currently not in the labour force but are receiving welfare support will be forced into unemployment and it is expected that the official data will pass the symbolic 5 million mark.

The Government has waged a huge public relations campaign in recent months to sell the so-called long-term benefits of the plan. They are part of a raft of structural reforms under the Agenda 2001 rubric which German chancellor, Gerhard Schröder, acknowledges will involve serious short-run pain for the disadvantaged. The Minister for the Economy (see translated interview below), Wolfgang Clement recently said that over the next 5 years German unemployment will fall. However, Germans are not convinced.

The protests against the undermining of the social protection for the unemployed began in the last European summer with a series of demonstrations similar to the "manifestations du lundi", which saw the communist regime swept away in East Germany in 1989. The opponents plan to stage rallies outside the employment offices in 55 German cities with the objective of forcing their closure to disrupt the introduction of the policy changes. One protest organiser said that "Notre but est d'interrompre les opérations dans les bureaux pour l'emploi, prévenait cette semaine la dirigeante d'un groupe de protestation. Ces bureaux sont des symboles primordiaux de l'impertinence répressive de l'Allemagne." - that is, they intend to close the employment offices which they claim are symbols of the "repressive impertinence of Germany" (any one a better translation!).

The employment agencies have been planning for the strife and have provided some of their employees with special 'police' training to teach them how to manage conflict situations. The employment offices have installed emergency buttons on their computer so that an officer can summon aid if required. Employees have also been advised to arrange their staplers and paper punches on their desks in such a way that they cannot be used as projectiles in case the discussion becomes a little animated ("en cas de discussion trop animée"). So the employment services are indulging in a bit of 'feng shui!' no less!

There have already been incidents where unemployed persons have gone postal!. Le Monde reports that in 2001, an employment office manager in Lower Saxony was stabbed to death by an engineer who had recently had his unemployment benefits cut. More recently, an unemployed technician drove his car into the middle of an employment office before blowing himself up with a propane gas bottle bomb.

Apart from the generalised dislike of the reforms, introduced by the SPD Government, other pressing problems are worrying officials. First, the legal status of the Hartz IV reforms is currently unclear. Under German law, it appears that a citizen who is hurt by the changes can contest it constitutionally. Experts say the reforms have introduced a high degree of insecurity. Until the legal issues are cleared up the Federal Government will continue to balance on a knife's edge.

Second, the introduction of the reforms on Monday was accompanied by chaos as a result of adminstrative and technical incompetence in the administering department. Due to begin on January 1, 2005 there was initial chaos beause of a computer programming error such that 1.8 out of 2.6 million people did not get their unemployment benefits paid into their bank accounts. Only last minute concessions by the banks and other financial intermediaries defused a major crisis . Nevertheless around 100,000 long-term unemployed persons had to go to employment agencies in person to get cash handouts or have been forced to wait a few days longer for the money to be deposited in their bank accounts. The department responsible said the computer error arose because the program completed account numbers with less than ten numbers with zeros instead of the usual practice of inserting zeros at the beginning of the number string. The labor market reforms rely on an effective computer system and there are widespread concerns about the ability of the system installed to deliver. The central computer system for the Department of employment is in Nurenberg and it stores all the data but it has not yet been able to function properly. The 'brain' of Hartz IV has 60 computer experts working around the clock to ensure it remains functional. Since October 18, when the computer was turned on, there have been 14 substantial or total computer failures according to an internal report. The overloaded system functions extremely slowly when it is working. BamS reports that a key manager of the system has admitted that "to date it can only handle simple cases but solutions have to be found to ensure payments are made. We are continually having to iron out errors. The numerous weaknesses have to be repaired immediately." (translated).

In Sunday's Bild am Sontag, reporter Ulrich Deupmann from BamS interviewed the German Minister of the Economy, 64 year-old Wolfgang Clement (SPD) who claimed that "Arbeitslosenzahl sinkt ab nächsten Sommer" (unemployment will start falling from next summer). But he also conceded that the new labour market reforms (Hartz IV) would initially introduce significant problems. Here is my translation of the interview which is not perfect. My French is much better than my German!

BamS: Mr. Clement, Chancellor Schroeder has made you personally responsible for the success of the Hartz IV labour reforms? Do you sleep well?
Clement: I am stressed but have full confidence that the most profound labour market reform in our history will ultimately be successful in Germany. But I certainly carry the responsibilty.

BamS: What will you say to the people who will find that their benefits have not arrived in their bank accounts tomorrow?
Clement: Well that might be the case because the federal agency has found a computer programming error. I very much regret that. We assume however that the money transfers will find their way into the correct accounts in most cases in time. Where that is not the case, I am advising the unemployed to go to the employment agencies on Monday directly. They will receive cash support from the welfare service to ensure they have sufficient means to survive. No-one will have to start the year without support.

BamS: In many communities there will be violent protest. Are the employment agency staff prepared?
Clement: I do not deny that there will be starting problems but these will improve in the coming weeks. I promise that. We will adopt an absolutely professional approach to the new program over the next 12 months. In the second half of the year, approximately by October, all employment agencies will have job centres with special enterprise support and related services. We have directed all employment agencies to disburse payments on time. But with the reforms we have been rushed in recent months.

BamS: It seems that while all the employment agencies were directed to ensure punctual payments, there has not been any time for the core business of finding jobs for the unemployed in the past.
Clement: The employment agency has never not functioned but in principle you are right. We have had less time for this task in the past months. It is like being on a large-scale building site or as in a furniture removal. If I concentrate on moving furniture then one cannot cook so easily. But in the next months we will strengthen the employment agency.

BamS: The employment agency staff have been working a lot of overtime. Even if you stop holidays now there is not enough resources available to conduct the core business of the agencies.
Clement: It is true that employment agency staff have been working around the clock and at weekends. But we have now abolished the outdated structures which will help employment agency staff deliver more services. In the new job centres which are opposite the old labour offices there is now more time

BamS: Prominent politicians of your own party the SPD and the Greens, and your Ministerial colleague Stolpe have demanded that the reforms be reconsidered.
Clement: Now that the reforms are to be introduced, it is not the time to think about amendments. The labour market reform legislation is a strong package and should be given a chance. If over time we deem improvements can be made we will naturally react. But right now we should all concentrate on making the changes successful.

BamS: How do you plan to prevent that unemployment from increasing to 5 million in February?
Clement: I do not expect unemployment will exceed 5 million. However, as a consequence of the Hartz IV reforms we now have a special situation. About 380,000 people on social security will from tomorrow have to participate in job search through the employment agencies. We are taking these individuals from a 'darkness' into job search and this will be reflected in the official statistics. So in fact we are making the actual level of unemployment transparent and that is appropriate.

BamS: The economic research institutes forecast that unemployment will rise in 2005. They say the annual average will rise by more than 225,000 unemployed persons.
Clement: I don't agree with that. From next summer the number of unemployed will start to trend downward - slowly but surely. This year we will target youth unemployment and under the Hartz IV reforms all under-25 year olds will have to register via an 'integration contract' for job search with an employment agency. Any one who refuse training offers will no longer receive money from the state.

The German government has been a driving force behind the repressive Brussels-Frankfurt consensus in macroeconomic policy which comprises an inflation-obsessed European Central Bank and the Stability and Growth Pact (Maastricht Treaty). The former places national fiscal policy in a straitjacket. The major reason there has been persistently high unemployment across continental Europe (typically around 10 to 11 per cent) is because the European national governments have refused to use their macroeconomic policies to generate enough demand for goods and services. Employment growth is stagnant. You cannot search for jobs that are not there! If you are interested in reading more about the straitjacket imposed on Europe by the neo-liberal Brussels-Frankfurt consensus go to our Working Papers and you can download the paper by Joan Muysken and myself which came out in November 2004.

So that was a cheery interlude in my Tuesday!

Blog entry posted by bill