Labor Pains

Jobless in Germany

Agentur fuer Arbeit
The line at Germany's Labor Agency is getting smaller, the bureaucracy is not.
  • Why it matters

    Why it matters

    Germany’s economy is motoring along, but there are serious inefficiencies in the public bureaucracy.

  • Facts


    • Germany implemented a package of labor and welfare reforms over a decade ago widely regarded as getting Europe’s largest economy back on track.
    • Germany’s unemployment rate has fallen to a post-unification low, but there are still one million long-term unemployed in Germany. The long-term dole is referred to as Hartz IV.
    • The Labor Agency plans to cut 17,000 jobs by 2019 – not fast enough for many.
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Germany’s employment miracle of recent years is something to be marveled at, but the agency that has been responsible for it is still a mess.

Around the world, the labor and welfare reforms undertaken by Germany more than a decade ago are considered to have played a crucial role in getting Europe’s largest economy going again.

Part of former Chancellor Gerhard Schröder’s Agenda 2010 reform package, the Hartz measures, modernized Germany’s Federal Labor Agency with the intention of making the unemployed less reliant on benefits and more responsible for finding work.

And at first glance, it worked splendidly: A decade ago, some five million people were jobless, today fewer than three million are. The country’s unemployment rate is the lowest in the European Union at 4.8 percent, its lowest level since Germany’s unification in 1991.

But these figures mask the Labor Agency’s poor performance. Germany’s largest bureaucracy seems to be a bottomless pit that is more a beneficiary of the booming economy than an institution working to make out improvements.

Even streamlining its own internal structures has stalled: Although the number of unemployed has dropped dramatically over the years, there are actually more people working at the Labor Agency today than a decade ago.

“Of course, we are adjusting to the changes on the labor market,” the labor agency’s boss Heinrich Alt told Handelsblatt.

But that’s a slow – an extremely slow – process. The authority now wants to shed 17,000 positions out of a total of 100,000 by 2019.

In 2014 alone, the record sum of more than €500 million intended for the long-term unemployed ended up paying for such things like wage increases for job center employees and new IT systems.

And considering that so many civil servants are taking care of fewer unemployed, the agency’s record is rather dire: Only every eighth person looking for work in Germany finds it with the help of the Labor Agency or a government job center. These centers, run jointly by the Labor Agency and regional municipal authorities, seem unable to reduce the country’s legions of long-term unemployed below one million.

At the same time, agency employees feel they are being pushed to the limit: According to a letter from job center workers’ representatives to the Federal Labor Agency’s board seen by Handelsblatt, they complain of unqualified colleagues, high turnover and misguided targets. Attempting to tackle the societal problem of long-term unemployment under such conditions amounted to “organized self-deception,” they wrote.

At the core of the problem lies the administrative burden put on the job centers: Half of all employees there are busy calculating welfare payments known as Hartz IV benefits. That means they can’t help someone find a job. The Labor Agency had intended for only 20 percent of job center workers to be tasked with calculating benefits.

“Overwhelmed workers can’t find jobs for the long-term unemployed,” said Mr. Alt, who hopes the government, which is planning legislation, will soon change the agency’s financial framework for the job centers.

Would that be enough? It could be that the Federal Labor Agency needs its own reform agency.


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The Hartz reforms, named after the Volkswagen personnel manager Peter Hartz who helped developed the initial concept, were implemented in four phases from 2003 to 2006. They were meant to combat the stubbornly high unemployment and stagnant growth that had saddled Germany with the nickname the “sick man of Europe.”

But the introduction of Hartz IV, as the German dole is now commonly called, sparked widespread protests a decade ago and has been criticized for penalizing the long-term unemployed.

The agency itself has acknowledged that long-term unemployment is becoming increasingly entrenched. To be sure, the share of people without a job for longer than two years is increasing disproportionately.

Opposition political parties complain that Germany’s labor policy has hit a dead end. Job centers are only concerned with quickly crossing someone from the jobless rolls, regardless of the long-term prospects. Some 40 percent of Hartz IV recipients fail to hold down a job for more than six months. Is the Labor Agency merely concerned with massaging the jobless statistics?

If someone loses their job after at least six weeks, they are no longer considered long-term unemployed.

“Placement in jobs securing livelihoods is unfortunately still not a target,” complained Annelie Buntenbach, deputy chairwoman of the Confederation of German Trade Unions, the DGB.

However, Ms. Buntebach, who sits on the Federal Labor Agency’s supervisory board, said the federal and state governments were primarily responsible for setting the agency’s course.

Currently, job placement takes priority over job training, which is why funds for improving skills and qualifications of jobseekers have been cut by 40 percent since 2010. Administrative budgets for job centers have also been cut by eight percent, prodding civil servants to promptly siphon off even more funds meant for the unemployed.

In 2014 alone, the record sum of more than €500 million intended for the long-term unemployed ended up paying for such things like wage increases for job center employees and new IT systems. Mr. Alt said simply that each job center decided how to spend its budget, with the government merely setting the financial framework.

Brigitte Pothmer from the opposition Green party said the Labor Agency desperately needed more money.

With Germany recently introducing a national minimum wage, fewer people need to top up their pay with Hartz IV benefits, according to Ms. Pothmer. The Labor Agency estimates it will save €700 million to €900 million annually.

“If that money could be used for improving qualifications and focused support for the unemployed, a lot could be done,” she said.

German Labor Minister Andrea Nahles from the center-left Social Democrats, the SPD, would rather point to her program to combat long-term unemployment: 1,000 positions from a federal program will be moved to the Labor Agency and the employees will retrained to support the long-term unemployed. The government is also investing €900 million in coaching poorly qualified people by 2017 and will spend €150 million each year in improving job prospects for those jobless with health issues or needing child care.

But that still leaves one million long-term unemployed in Europe’s largest economy.

“An investment offensive for people at the bottom edges of society would appear to be politically uninteresting – even for a SPD-led Labor Ministry,” commented Alexander Spermann from the Institute for the Study of Labor in Bonn.


Frank Specht covers labor policy for Handelsblatt from Berlin. To contact him:

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