On 18 February 2010, the OECD presented a comparative study on social protection that again proved that the social transfer system in Germany offers only little financial incentive, especially to unemployed persons that live in households with children, to take on low-paid work that would provide them with a subsistence-level livelihood. Both single parents as well as sole earners with two children must achieve earnings of more than 60 percent of average earnings before their net income is noticeably above what they receive in transfer payments.
Already in 2002, the Ifo Institute developed the reform concept of Activating Social Welfare (Ifo Policy Issue Low Wage Employment / Welfare to Work) that contains better options for additional earnings in order to increase the financial incentives for the long-term unemployed to take on a full-time job. The concept of the Ifo Institute presents for Germany a feasible way to achieve full employment that increases the earnings of the low paid without additional costs arising for the state.
The municipalities would be legally obliged to create comprehensive job opportunities for all Hartz-IV recipients. The ALG II standard rate is used as a wage for a full-time job from a municipality. Heating, rent subsidies and health insurance are paid in addition. There is no obligation to work, but the reductions for refusal to work that are in effect today would remain. The municipalities would have the right to employ the people entrusted to them themselves or to transfer them to a temporary employment agency for private-sector employment. If a municipality is not able to offer an employable person a job, they must grant him ALG II without deductions. Consequently, under the Ifo proposal, absolutely no one can fall below the current ALG-II income if he is willing to work.
If a Hartz-IV recipient wishes take on subsidised work in the private sector, in the normal case he must accept a reduction in Hartz-IV income amounting to one third, but in compensation the limit of extra earnings would be raised from currently 100 euros to 500 euros. In addition, the transfer withdrawal rate would be lowered for earnings above 500 euros. Currently the transfer withdrawal rate, depending on income and household type, is between 80 and 100 percent. Under the Ifo proposal it would be reduced uniformly to 70%. In other words, up to earnings of 500 euros, a welfare recipient would be able to keep every extra earned euro and beyond that they could keep 30 cents of every extra euro earned until ALG II no longer applies.
The system is structured in such a way that already with a half-day job in the private sector at a normal low wage so much is earned as with full employment from the municipality. This preserves the incentive for working in the private sector over work via the municipality.
The improvement in the extra earnings options in connection with the provision of employment by the municipality is aimed at safeguarding earnings and creating wage flexibility that would pave the way for full employment achieved by the private sector. If the Ifo proposal is implemented, no one who is willing to work will have less income than today and most will be better off. The motto of the Ifo plan is: Whoever is willing to work must be able to work, and then have enough to live on. Full information on the up-dated version of the concept under: Activating Social Welfare 2006 – the combination wage scheme of the Ifo Institute. (Press Release | Article (PDF) | Ifo Policy Issue Low Wage Employment / Welfare to Work).
In an international comparison, the German transfer payments to the long-term unemployed without children ranks in mid-field among the OECD countries. After five years unemployment they receive 36 percent of their last net earnings. Here, Germany ranks 14th of the 29 examined countries and is just above the OECD average. (OECD study).
Additional internationally comparative information on social protection is compiled in Ifo’s DICE database (DICE Database) in the categories Social Policy / Basic Protection / Guaranteeing Sufficient Resources as well as Labour Market and Migration / Labour Market / Unemplyoment Benefit Systems.
ifo Spezialthema Niedriglohn / Aktivierende Sozialhilfe (Zusammenstellung der ifo Veröffentlichungen und des Presseechos zum Thema)
Ifo's Database for Institutional Comparisons in Europe (DICE) with systematic information on economic institutions and regulatory systems as well as their economic effects. Additional internationally comparative information on social protection is compiled in the categories: - Social Policy > Basic Protection > Guaranteeing Sufficient Resources - Labour Market and Migration > Labour Market > Unemplyoment Benefit Systems.
OECD study "Wie generös ist Hartz IV im internationalen Vergleich?" For the OECD study (with Tables and Charts)
RSS