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Employment Dynamics in Germany:Lessons to be Learned from the Hartz reforms
Günther Schmid
Keynote to the conference“Employment: Challenge for Sustainable Economic
Development in the MENA Region” Organized by GTZ Sector Network Istanbul, 6th to 8th November 2007
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The basic elements of employment dynamics
The wealth of nations is always
“regulated by two different circumstances; first, by the skill, dexterity, and judgement with which its labour is generally applied; and second, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed”(Adam Smith, The Wealth of Nations, 1776/1937, vol. 1, p. VII)
Germany successful in quantity but not in quality
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Stylised facts of German employment dynamics: I
Economic growth 2.9% (2006) and first half 2007 Government deficit melting down to zero Employment intensive growth > 1 million Unemployment down by > 1 million Employment rates of ‘old’ workers up by 15
percentage points since 2000 Self-employment up to 10.4%
However, all that glitters is not gold
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Stylised facts of German employment dynamics: II
Low productivity dynamics (1.6% D; 2.4% USA) Increase of precarious non-standard employment High unemployment rates of low-skilled people High regional disparities in unemployment and
employment dynamics Low employment rates of low-skilled people Women still disadvantaged in terms of wages
and good jobs What are the factors that ensure sustainable employment?
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An Analytical Framework of Employment Dynamics
External& InternalShocks
International Relations and Endogenous Changes
Interaction ofAgents guided by Institutions
Labour Market and Employment Policy
► Demography► Migration► Work Preferences
Supply Shocks
► Education & Skills► Social Security► Employment Protection
Supply
Employability
► Globalisation► New Technologies► Consumer PreferencesDemand Shocks
► Technology & Capital► Effective Demand► Employment Regulation
Demand
Productivity
Inactive Population
Active Labour Force
Goods & Services
InvestmentEmployment
Wages
Work
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Determinants of positive employment dynamics
Successful strategies depend on the proper interaction of institutions that influence employability on the labour supply side and productivity on the labour demand side.
Employability depends obviously on education & skills, but less obviously and much contested also on social security and employment protection.
Productivity depends obviously on technology & capital, but less obviously and much contested on effective demand and employment regulation.
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Flexicurity Proposition
Neither the regulation nor the deregulation theory provide and adequate analytical framework.
It is flexicurity systems based on complementary institutions that enhance both flexibility and security in employment relationships.
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What explains Germany’s success and failure?
Institutional conditions and reactions to supply and demand shocks (I):
‘External Shocks’: Eurozone, East Germany ‘Internal Shocks’: individualisation, mobility Wages: efficiency wages, weakening unions Regulation: some deregulation, vices and virtues
of employment protection
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What explains Germany’s success and failure?
Institutional conditions and reactions to supply and demand shocks (II):
Welfare state: main concern is cost side Labour market policies: misused for parking Education & skills: exclusion of low skilled Political economy: high interest in status security
Weak: public investment; financing welfare state
Strong: vocational education; social partnership
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Main reforms in German employment policies
Promoting business start-ups for unemployed Promoting minijobs, midijobs and temporary jobs Activating unemployed through workfare plus ... Improved job matching through modernised PES Merging unemployment and social assistance
Weak: activating and merging
Ambivalent: marginal and temporary jobs
Strong: business start-ups
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Lessons to be learned: I
General Lesson: Why flexicurity systems? Institutions ensure negative and positive freedom
demand and supply perspective Negotiated flexicurity
negotiated flexibility, negotiated flexicurity Flexicurity options
good practices in Denmark and Germany
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Lessons to be learned: II
Specific lessons: Self-employment as stepping stone to
entrepreneurship or regular employment Modernisation of employment services
job matching and employability measures Flexibilisation through variable contracts
minijobs, midijobs, temporary work combined with new securities
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Lessons to be learned: III
Lessons through failures (1): Avoid fragmented responsibilities
Establish accountable administrative structures Don‘t cut short-term unemployment benefits and
expenditures on active labour market policies
Both have to be considered as investments Don’t neglect effective demand
Keynesian demand management still valid
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Lessons to be learned: IV
Lessons through failures (2): Don’t burden the shoulders of workers too much
Broaden income base for financing social security and make work pay
Don‘t set unrealistic full-employment goals
Broaden the opportunity set of employment in the lifecourse and make transitions pay