US NPR's "Planet Money" on German Unemployment "Fix"
Source Jim Devine
Date 11/09/26/01:51

Germany's Painful Unemployment Fix (on U.S. National Public Radio)

As the U.S. and much of Europe struggle to bring down unemployment
rates, one country stands apart: Germany, where the unemployment rate
is just 6.2 percent.

The story of how Germany got here goes back nearly a decade.

In 2002, Germany looked a lot like the United States does today: it
had no economic growth, and its unemployment rate was 8.7 percent and

Gerhard Schroeder, the German chancellor at the time, made an
emergency call to a trusted friend.

"I was actually surprised when I got the call," says Dr. Peter Hartz,
who had gained a high profile as human resources director at

In 2002, Hartz convinced unions to make concessions to save jobs.
Schroeder knew of Hartz's work because they'd served on Volkswagen's
board together.

Schroeder wanted Hartz to apply his formula to the whole country, so
the chancellor created a commission and put his friend in charge.

Hartz's first step was to challenge Germans' standard notion of what a job was.

He wanted them to rely less on long-term, full-time positions with
lots of worker protection, and get them into flexible temporary jobs.

"We saw that companies would indeed hire if they were able to take on
additional people for temporary jobs and smaller jobs," Hartz recalls.

He and his commission named this new breed of work a "minijob."

Thomas Huch owns a factory that produces steel tanks in Nuerrepin, a
town about an hour outside of Berlin. The shop floor is a combination
of high- and low-tech; sparks fly from welders while across the room
men tap away at computers.

Huch is a fan of the minijob.

"It's not possible to give everybody full-time jobs," he says.
Minijobs let him bring in workers when he has a backlog or when
there's a rush in business. Before the Hartz commission, Huch
explains, he lacked the ability to let workers go when he no longer
needed the help — so he couldn't hire when he had a temporary surge in
business. Minjobs let him do that.

But a minijob isn't such a great deal for workers. They can work as
many hours as the employer wants, but their wages max out at 400 Euros
per month, or about $550.

Workers get to keep all the money — they don't pay any taxes on their
earnings. And they're still eligible for some government
assistance.The minijob can also lead to a regular, full-time job.

The number of people working in minijobs and other temporary
employment has skyrocketed since 2005, when Hartz's reforms became
law. After an initial spike to 10 percent, Germany's unemployment rate
dropped, settling in at today's 6.2 percent.

But Peter Hartz remains unpopular in Germany, largely due to his
second big idea for fixing Germany's job market: He wanted to make
life harder for the unemployed.

Under what came to be known as the Hartz Reforms, a German who's out
of work for more than a year gets 364 euros a month (about $500). They
also get subsidized rent and heat, and a job counselor.

Before the Hartz commission, they'd get paid roughly 50 percent of
their previous income for as long as they were unemployed.

In Nuremberg, I met Monica Cariben, who is about to lose her job at an
insurance agency. Like a lot of people, she prefers the old
unemployment system.

"I am upset that there are recipients who have been drawing this
benefit for twenty years and they have a good life," Cariben says.
"And somebody like me who comes in now, we get such little money—that
is not worthy of a human being."

Under the new Hartz rules Cariben must register for unemployment
before her current job ends. If she doesn't, the government can punish
her by delaying benefits.

It sounds rough, but that's the point. Hartz wanted to make
unemployment uncomfortable so that people would get back to work.

"What is most important is to make sure that any unemployed person
gets a job as fast as possible," Hartz says.

Hartz's legacy is controversial both because of the reforms and some
shady dealings. He was convicted of paying off union leaders back at
Volkswagon to go along with his 2002 cutbacks.

Still, the changes he pushed through have clearly contributed to the
huge drop in the country's unemployment rate.

What lessons can the US draw from Germany?

Unfortunately, not many. A lot of the regulations and benefits that
the Hartz Commission curtailed simply don't exist here.

We already have lots of low-paying temporary jobs, and our
unemployment benefits are nowhere near as generous as Germany's once
were. The Hartz Reforms basically made Germany's labor market look
more like the labor market in the U.S.

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