Labor Reform Plans for Germany Officially Unveiled

On Friday, Peter Hartz, Volkswagen personnel chief and head of the commission that bears his name, handed a CD to Chancellor Gerhard Schröder before 500 guests and journalists at Berlin’s French Cathedral. It wasn’t a digital Bible, rather 343 pages of proposals for reforming German’s highly regulated labour market and putting many of the country’s four million unemployed back to work.

Still, Schröder must be hoping it can work miracles, and give him the badly needed boost in the opinion polls he needs to catch up with his challenger before next month’s parlimentary elections.

In a nutshell, the key points of the Hartz Commission proposals are as follows:

Job Centers: Germany’s 181 labor offices to change their names to a friendlier-sounding “Job Centers” and become one-stop-shops for the jobless. New emphasis to be put on finding jobs for the unemployed rather than managing unemployment.

More pressure on unemployed: People who have been fired or who know they’re about to be laid off to register immediately with local labor offices. People who refuse to take jobs offered to them face possible cuts in benefits. No overall cuts in benefits.

Temporary Work: The temporary work sector to be expanded. Unemployed people to be assigned to “Personal Service Agencies” and be placed in temporary jobs or provided job training.

Mini-Jobs: To promote low-income jobs, the level under which no tax and social security are paid to be raised from €325 to €500 for household and childcare workers.

Me, Inc.: To legitimize Germany’s thriving black market, unemployed people to be encouraged to incorporate themselves, income up to €25,000 ($24,610) to be taxed to a flat rate of 10 percent, instead of the current 19.9 percent.

Job Floater: Companies, especially in eastern Germany, to get low-interest loans if they hire an unemployed person.

The Hartz Commission, made up of representatives from industry, the unions, science and politics, has been working on the reform proposals for six months. The first draft of the commission's proposals was leaked in June, and were subject to much public debate. Last week, the commission reconvened to vote on a final version and on Friday, Peter Hartz officially handed the proposals to the Chancellor, saying that within three years, they could lower the number of unemployed in Germany by two million.

That’s music to Schröder’s ears. He is trailing the conservative opposition in the polls apparently because he has failed to keep his promise to bring down the nation’s stubborn unemployment rate, which is now hovering at around 10 percent. On Friday he said he would immediately get to work on putting the proposals into practice, even though many of the changes would require new legislation, which would not be possible to introduce before the September elections.

"Government failure"

The opposition was quick to dismiss the proposals as election year grandstanding.

“It’s another example of the current government’s failure,” said Angela Merkel of the opposition Christian Democratic Union (CDU). “It’s not a giant step, it’s at best a complicated little package that does not tackle the issues that will create more employment.” The CDU and its sister party, the Christian Social Union, want to address Germany’s unemployment problems primarily through tax and social security reforms.

Industry leaders also had their reservations. Michael Rogowski, head of the Federation of German Industries, said “there’s really no grounds to celebrate the proposals” and that some of the proposals could lead to lasting state involvement in the labor market.

Germany’s chambers of commerce association, DIHK, called the proposals an “important step, but no breakthrough.” It criticized the decision to scrap possible general cuts in unemployment benefits to motivate people to accept jobs offered to them. Although initially considered, the proposal was dropped under pressure from the trade unions.