ASPEN , ETUI-REHS Brno 20.03.2009

1. ASPEN , ETUI-REHS Brno 20.03.2009 Beyond work first activation The German Welfare Reform in a comparative view Regina Konle-Seidl@iab.deD - Institute for Employment Research (IAB)

2. Overview • Need for redesign of national unemployment protection in post industrial labour markets • The German welfare reform (Hartz IV): a prime example of UE protection adaptation? • Preliminary outcomes of the new system

3. Changing the regulation framework • Need for a new model for regulating joblessness in Europe? • unemployment insurance as well as social assistance increasingly ill suited • adaptation of working-age benefit schemes to post-industrial labour markets

4. Changing profile of LM risks • Post-industrial LMs are characterized by • expanding service sector • skill-biased technological change →need for skill adaptation • increase of atypical work • low end and high end jobs • problems of UI coverage • limits of status maintenance • increase and persistence of LTU • increasing risk of social exclusion • make work pay

5. Patterns of adaptation • unemployment support homogenisation • activation of benefits • co-ordination of unemployment protection → redesign of national income support systems

6. Unemployment support homogenisation • Dual aim: prevent poverty and (by) enhancing integration into gainful employment • need-oriented, flat-rate benefits - access during periods of joblessness independent of work history - benefit level can vary: possible “upward” or “downward” generalization • financial incentives (“make work pay”) - to counter disincentive effects of high effective tax rates on means-tested benefits (“inactivity trap” / “low-skilled trap”) - by earnings disregard clauses/ wage supplements to top up low paid work or take on temporary employment • activation (rights and responsibilities)

7. Towards a single working-age benefit? • standardisation of entitlements and eligibility across individuals with very different employment histories • making insurance benefits less status confirming • from last resort systems (social assistance) to “activating unemployment support systems” • including more financial incentives to take up work for low earners (in-work benefits) • shift from contribution based funding (non- wage labour costs) to general tax revenues (esp. in Bismarckian welfare states) →blurring boundaries between insurance and assistance and UI and other forms of non-employment benefits

8. Benefit reforms are linked to … • New Welfare Governance • Unemployment policy co-ordination at the interface of labour market and social policy • ■horizontal co-ordination • integration of income support and re-integration services • one-stop shops, single gateways • ■vertical co-ordination • between different layers of government • networks and external providers

9. Activating interventions… • demanding instruments • individual activity requirements • stricter suitability criteria to take up jobs and sanctioning clauses enabling instruments • ALMP to improve employability and re-integration • specific support measures (social services) • “contingent convergence” of activation strategies across EU countries • activation as a moving target over time • convergence of conditionality and generosity but with varying importance • similar repertoire of instruments in a work first environment • trend towards widening the scope of activation (to all non- employed)

10. Contingent convergence of benefit generosity

11. Hartz IV: Big bang reform (2005) • ■ fundamental benefit reform • merging of unemployment assistance and social assistance schemes • introduction of means-tested, flat-rate “basic income support” for able-bodied jobseekers” (UB II) • administrative (“need-oriented”) poverty threshold • shortening of duration of UI benefit entitlement → shift from status protection to basic income support • ■ activation of UB II recipients (Fordern und Fördern) • extensive definition of “acceptable work” • focus on work; in-work-benefits for low-paid work (“Aufstocker”) • work activities (“1 € Jobs”) • employability measures • ■ changes in the institutional setting • creation of 340 ARGE jobcentres (consortia of PES and municipal offices) as “one-stop shops” for welfare clients • 69 opting municipalities as a “time-limited institutional experiment”

12. inability to work social assistance 2004: UA: unemployment assistance2005: UB II 2004: UB 2005: UB I D: Working-age recipients of main income support schemes Source: Federal Statistical Office Germany, Federal Employment Agency Germany (2005), Federation of German Pension Insurance Institutes

13. Similar trends of policy adaptation in other EU countries • …. but less encompassing/ more incremental • UK - benefit reforms 1996 (JSA) , 2008 (ESA) • - “welfare-to work”: work first activation - Jobcentre Plus 2002 • France • - benefit reform: 2008/09 (RSA) • - organisational: 2008/09 (Pole emploi) • - PARE, extending and reinforcement of activation measures? • Netherlands - benefit reforms 2004 (WWB) and 2006 (WIA) - work first at municipal level organisational: - SUWI (2001); merging of CWI and UWV (2009) … also in Denmark, Sweden, Austria … • ,

14. Preliminary outcomes of the new system • Benefit receipt • strong increase in UB II recipients between 2005 and mid-2006 • welfare take-up rates increased (decrease of hidden poor) • decrease of housing benefits by > 50% • improved fringe benefits (full medical coverage, pension and care insurance) • more generous earning and asset limits compared to former SA • in-work UB II benefits esp. among part-time and mini- jobbers • just 1/3 of total BIS and 50% of able-bodied UB II recipients are registered as unemployed • after 24 months: 48% of households left UB II benefit rolls • decrease among unemployed UB II recipients since mid-2006

15. Preliminary outcomes LM participation • marginal effects on labour supply; negative for lone mothers • evidence on increased search intensity and reduced reservation wages • unemployment generally down by 30% (end of 2008) (open UE - 33%, hidden UE – 35%) • reintegration rate 27% p. a. among UB II recipients

16. Preliminary outcomes of the new system • Public expenditures • general shift of financial resources from employment related contributions to general tax revenues • UI contribution rate down from 6,4% in 2005 to 2,8% but (unexpected) increase in public expenditures financed out of tax revenues

17. Preliminary outcomes of the new system • Social inclusion • UB II standard payment is higher than in former social assistance but lower than in former unemployment assistance • redistributive effect: 20% on the lower end gain, 20% on the upper end loose • not “poverty by law” rather poverty preventing • However: higher risk of exclusion (deprivation indices) for singles between 35-49 years and lone parents Detailed results: www.iab.de (IAB-Bibliothek 315)

18. Evaluation of an “institutional experiment” • who performs better and why? -jobcentres of the ARGE or opting municipalities by comparing activating interventions in terms of • termination of need (BIS receipt) • reintegration rates into employment - into employment which terminates neediness - into unsubsidized employment • improvement of employability and social stabilizing

19. Who performs better? Centralized vs. decentralized service delivery • Impact on individual and aggregate level • existing performance differences between models are statistically not significant • ARGE : faster reintegration into jobs which end benefit receipt (25%) • municipal jobcentres: - higher reintegration rates into jobs which do not end neediness/UB II receipt (15%) - advantages in the improvement of employability (measured by a multidimensional indicators) • estimated fiscal effects: difference of 3,1 billion € in 1 year 2006/2007 in favour of the ARGE jobcentres

20. Who performs better? Centralized vs. decentralized service delivery • Driving forces • generalized rather than specialized case-management • workload • quick (work first) and intensive assistance • consequent sanctioning • job training measures • availability of child care facilities • → not models but implementation strategies make the difference • however: no political solution; problem of interlocking federalism Results in detail: http://www.bmas.de/coremedia/generator/31070/f390__forschungsbericht.html

21. Concluding remarks • Basic income allowance of growing relevance regarding the structure of unemployment protection in Germany • Beyond activation: convergence of patterns established in more liberal market economies (flat rate) but also in Scandinavian welfare states (funding mode) • Modelfor post-industrial risk regulation despite several shortcomings? • What happens in times of crisis? Possible reversal of policy trends?

22. Thank you for your attention! • Regina.Konle-Seidl@iab.de