Labour Market Institutions in GERMANY: Current Status and ongoing Reforms

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Labour Market Institutions in GERMANY Current
Status and ongoing Reforms

• Paper prepared for the conference The Social
  State in Armenia, organised in cooperation of
  the DAAD and the CRRC Yerewan, 24.-26th February
  2006 in Tsahkazdor/Armenia
• Dr. Silke BothfeldEconomic and Social Research
  Institute
• Hans-Böckler-Foundation, Düsseldorf

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Structure

• I. Introduction
• II. Three main areas of labour market regulation
  including ongoing reforms
• 1. Labour Law
• 2. Collective Bargaining
• 3. Active Passive Labour Market Policies
• III. Summary
• Driving forces
• Unsolved questions

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I. Introduction

• Problem
• High and rising unemployment despite good
  economic performance
• Question
• How to characterise and how to explain recent
  labour market reforms?
• Hypothesis
• The German institutional model becomes more
  heterogenous and show tendencies of erosion but
  does not follow to a unitary model

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I. Standardised Unemployment Rates
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II. Three areas of labour market institutions
basic principles

• Labour Law
• Relative high social protection democratic
  participation on company level
• Collective bargaining
• Centralised wage-setting system as guarantee for
  sustainable development of wages
• Labour Market Policy
• Maintenance and support of high quality labour
  supply

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II. Labour Law Contradictory changes

• Dismissal protection Deregulation
• Working-time Regulation Mixed perspective
• Co-Determination Enhancement of employees
  participation
• Sick pay Symbolic battle
• Parental leave Fundamental adjustments

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II. Labour Law Coverage by works councils
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II. Labour Law Effects on Gender relations
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II. Collective bargaining Core element of labour
market regulation
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II. Collective bargaining Coverage by collective
agreements
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II. Collective Bargaining Tendencies of Erosion?
Controlled decentralisation of collective
bargaining by use of opening clauses Decrease in
trade union membership From 11,8 in 1991 to 6,8
Million members 2005 membership rate of 20 in
2005 Increase in share of low-wage-earners and
increasing wage dispersion
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II. Labour Market Policy The Activation Strategy

• Economic rationale
• To increase effectiveness of expenditure (budget
  containment)
• Avoid poverty trap (eliminate negative
  incentives for transitions into paid employment)
• Political rationale
• To avoid free-riding behaviour and misuse of
  social benefits
• Public responsibility for the provision of more
  effective instruments for re-integration into
  paid employment
• Assumption about causes for unemployment
  (individual/ structural)
• Assumption about economic and social behaviour of
  citizens

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II. Active Labour Market Policy Policy Mix

• Further Training and Qualification
• cuts in expenditure for training measures
  reorganisation of training sector
• increasing mismatch?
• Promotion of non-standard forms of employment
• deregulation of mini-jobs, promotion of
  self-employment and development of marginal
  social employment
• substitution of standard employment pressure on
  wage bargaining
• Enhancement of consultancy and placement
• systematic institutionalisation of private
  placement agencies
• Re-organisation intensification of placement
  service for l.t.u.e.
• ? quicker re-integration into paid employment?

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II. Unemployment Insurance Paradigmatic change

• Stronger obligations for recipients
• early registration stricter criteria for
  employments that unemployed must accept
• ? Increasing pressure on unemployed to take up
  employment
• Cuts in benefits
• reduction of benefit duration for unemployment
  benefit for l.t.u.e. wage replacement benefit is
  reduced to flat-rate benefit
• ? Partly dramatic decrease in life standard for
  l.t.u.e.
• Merger of system of unemployment social
  assistance
• integration of former social assistance
  recipients into labour promotion measures
  stricter account of household income assets
  sticter obligation to accept marginal employments
• ? Increase in perception of social insecurity
  increasing pressure to take up any employment

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III. Summary Different speed of change in the
three areas its driving forces
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III. Outlook Remaining questions
What will the regular employment status be
like? Adjusted standard, maintenances of present
regular employment standard or no standard at
all? What level of social security do we need?
Basic provision, maintenance of principles of
equivalence and solidarity, or generous universal
benefits? How can social standards be defined and
social policy programmes be formulated in
future? Scientific based technocratic
(closed-shop) commissions, old neo-corporatist
decision making or new forms of social
participation democracy