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Options for Merging Unemployment Assistance and Social Assistance
Guido Freidinger and Peter Hötger
Options for Merging Unemployment Assistance and Social Assistance
Abstract
Introductory Remarks
Unemployment Assistance: Ambiguous Position between Unemployment Benefit and Social Assistance
Excursus: Local Authority Employment Promotion - Making a Virtue out of a Necessity
Important Impetus from the Commission"Modern Services in the Labour Market"
A Matter for the Federal Government or Local Authorities:Pro and Contra
Demands on an Organisation for the Integration of the Long-Term Unemployed
Central Local Authority Organisations with Differing Positions
"Unemployment Assistance/Social Assistance"Working Group of the Commission on the Reform of Local Authority Finances
"Fourth Act for Modern Services in the Labour Market"Adopted - Nevertheless Many Open Questions
Far-Reaching Reform of the Federal Agency for Employment
Macro-Economic Efficiency Gains
Local Authority Experience Indispensable in Work with the Long-Term Unemployed
Abstract:
Unemployment assistance and social assistance are two important pillars in the German social security system. The two benefits are need-related and tax financed. An intensive debate is currently being conducted among experts and politicians on merging the two aid systems. Apart from clarifying necessary substantive demands on the work of the new institution that is to provide the service, the discussion is concerned superficially with the question of the distribution of financial transfers and organisational competencies. Two models are under consideration: 1.) In new agencies for employment and attached job centres, the Federal Agency for Employment (formerly Federal Institute for Employment) will be responsible not only for its old clientele but also for some one million employable recipients of social assistance together with their families. 2.) Local authorities set up their own job centres and serve both "their" clientele of employable social assistance recipients and the former employment authorities clientele, unemployment assistance recipients and their dependents.
Introductory Remarks
Unemployment assistance (Arbeitslosenhilfe) and social assistance (Sozialhilfe) provide a total of 5.7 million people in Germany with part or all of their livelihood. For some years now experts have been engaged in an intensive debate on whether merging these two social security systems could be advantageous. The discussion was stimulated not least of all by the report of the "Modern Services in the Labour Market" commission. Across the entire party spectrum there is no longer any doubt about the need for amalgamation.
Although years of discussion reached a provisional climax in December 2003 with adoption of the "Fourth Act for Modern Services in the Labour Market," the provisional rejection of an "options act" has left certain problems still to be resolved as required by the Bundestag resolution on adoption of the Act (Drucksache 15/2264), especially as regards cooperation between existing social assistance authorities and the Federal Agency for Employment. This article can therefore reflect only the status of discussion at the time of going to press (March 2004). According to some publications, uncertainty about implementation of the new legislation, especially among local authorities, appears to have grown rather than diminished. Our primary aim is therefore to provide input for decisions on the concrete form of the required "local cooperation."
Unemployment Assistance: Ambiguous Position between Unemployment Benefit and Social Assistance
Unemployment benefit (Arbeitslosengeld) is an insurance benefit granted for a limited period to employees covered by unemployment insurance regardless of their individual financial position at the time of becoming unemployed. The level of unemployment benefit depends on length of employment and age. The present discussion on reform has also failed to call this insurance benefit into question - except as regards revision of the entitlement period, especially for older employees. According to the Federal Institute for Employment, an annual average of 1.89 million people were receiving unemployment benefit in 2002. Including social security payments, spending amounted to € 27.0 billion - € 2.5 billion more than in 2001.
As the final resort, social assistance meanwhile makes a considerable contribution to securing people's material livelihood. It is a classical welfare benefit financed by the general local authority budget, e.g., current cost-of-living assistance in private households. It is granted without other preconditions to all in need. The level of this passive benefit is determined by need. It is not limited in time if the legal requirements are met, and is granted without antecedent consideration or statutory insurance. In the years of stabilising mass unemployment, the demands on local authorities to secure family income in the absence of earned income have increased constantly, sometimes abruptly.
Unemployment assistance occupies an ambiguous position between these two social security systems. On the one hand, the receipt of unemployment assistance at a diminished rate is generally coupled with prior receipt of unemployment benefit and, being calculated in terms of earlier earnings, is not need-related. The condition for receipt is, however, neediness. The person's own income and assets are taken into account. If neediness is established, unemployment assistance is paid up to the age of 65. Like social assistance, it is financed from tax revenues, but federal not local revenues. Unemployment assistance and social assistance differ considerably as regards criteria and levels, social cushioning, deductions for own income, earned income and partner's income, allowances for assets, rules on reasonableness, and recourse to persons liable to provide support. According to the Federal Institute for Employment, an annual average of 1.69 million people were receiving unemployment assistance in 2002. Total spending including social security benefits amounted to € 14.75 billion, just under € 2 billion more than in 2001.
The systems of unemployment assistance and social assistance have developed independently of one another over the past decades. This has had serious repercussions: inefficient double administration, the creation of "shunting stations," differing systems of jurisdiction, and unnecessary additional expenses. The juxtaposition of two tax-financed and need-related benefits is fundamentally questionable. The integration of unemployment assistance in a new, passive benefit - at least for the employable population - is the order of the day in social policy.
Excursus: Local Authority Employment Promotion - Making a Virtue out of a Necessity
Although the sole formal basis available has been Sections 18 ff. of the Federal Social Assistance Act (BSHG), local authorities have in recent years managed to develop a remarkable panoply of measures for occupational integration. They include occupational orientation and integration advice, direct placement with and without subsidised pay, limited-term skills acquisition or employment, and help in setting up in self-employment.
The creativity of local authority employment promotion is reflected not only in the abundance of measures but in the attention given to local needs in choosing areas of activity: the rehabilitation and development of industrial areas, the upkeep and laying out of public open spaces, the renovation and conversion of publicly-assisted housing, the renewal and construction of children's playgrounds, the development of new social and culture infrastructure to combat local problems and promote the local economy. Considerable success in value creation has thus been achieved over and above occupational and social integration and fiscal relief.
According to the Federal Statistical Office, local authorities spent € 8.5 billion in cost-of-living assistance for 2.7 people in 1.42 million households in 2001 - a 2.3 per cent fall in spending over 2000. The two following figures show that employment promotion and reintegration work in the primary labour market is particularly important in many communities: local authorities spent some € 1.1 billion on employment aid from their own resources alone. In 2000 they gave work to some 400,000 recipients of social assistance. A survey conducted by the German Association of Cities and Towns showed that the figure for 2002 was still about 390,000 (a first, slight decline after a substantial increase of 340 per cent between 1993 and 2000) - which not unnaturally led the association to conclude that with almost 50 per cent of the employable clientele, local authorities have (for financial and labour-market reasons) exhausted their own scope for providing employment.
Important Impetus from the Commission"Modern Services in the Labour Market"
Merging unemployment assistance and social assistance raises urgent questions about the category of persons affected and about organisational, legal, and financial responsibilities. In recent years there have been numerous initiatives at the political and administrative levels to resolve the questions raised; this article cannot deal with them in detail. Decisive impetus for the current policy debate has, however, been given by the Commission for "Modern Services in the Labour Market," especially with its "job centre" proposal and the mooted "merging of unemployment assistance and social assistance."
Under the "Fourth Act for Modern Services in the Labour Market" adopted in December 2003 on the basis of the 16th December 2003 Conciliation Committee compromise, unemployment assistance and social assistance are to be merged to form a single benefit, "basic security for job seekers" (SGB II) for employable persons in need.
This would leave unemployment benefit I as an insurance benefit. The core of the reform as regards passive benefits is the merging of unemployment assistance and social assistance for employable benefit recipients to constitute unemployment benefit II, which would in future be the sole benefit available to the relevant category of persons and their dependents to secure their livelihood. The principle of neediness is retained. The new passive benefit is to be financed by taxes and is intended to eliminate both "shunting stations" and the neglect of certain target groups for active labour market policy measures. Unemployable persons will receive social benefit, which corresponds to the old social assistance; they remain the responsibility of the local authority. The new passive benefit is oriented on the provisions of the Social Code III (SGB III). Suggestions for spreading burdens among the federal government, state governments, and local authorities were expected from the Commission on the Reform of Local Finances, but none were forthcoming, so that a political decision on distributing the costs of the reform is required. Since € 2.5 billion in relief for local authorities was predicted in the conciliation proceedings in December 2003, fierce discussion on the real costs, especially for local authorities, has been raging ever since. Later estimates suggest that, far from being disburdened, local authorities will have to shoulder an additional € 2.4 billion. A cross-state working group under the aegis of the Federal Ministry of Economics and Labour is currently attempting to elaborate a joint data base (four months after adoption of the Act!).
The commission proposal to install job centres under the control of the Federal Institute for Employment as future local centres for all labour market services has continued to dominate the reform debate. The nationwide introduction of job centres as one-stop shops for the entire employable population is intended to eliminate the double responsibility of employment office and social welfare office. The commission's ideas about the supplementary services needed in youth welfare, housing, drug rehabilitation, addiction and debt advice services under the roof of job centres have so far met with considerable reservations. In the first place, many experts question whether such complex services can be successfully integrated into the differentiated structures of an assistance process within the job centre in the framework of a "one-stop model." Secondly, it cannot be denied that, at least in the medium term, double structures for delivering certain services will have to be developed or maintained.
A Matter for the Federal Government or Local Authorities:Pro and Contra
The proposals of the "Modern Services in the Labour Market" commission set off an intensive debate among experts and politicians. It concentrated on how best to assign competence for dealing with employable recipients of unemployment benefit II. Should the task be assigned to job centres established under the responsibility of the Federal Institute for Employment or of social welfare institutions and local authorities?
Alternative 1: Federal Agency for Employment
Shifting responsibility to the Federal Agency for Employment (the former Federal Institute for Employment) offers the following advantages:
- sole responsibility of the Federal Agency for the entire employable population;
- the competence and infrastructure of the Federal Agency in counselling and placement, vocational training and integration would be available to all the unemployed;
- it would emphasise that the fight against unemployment is a national task;
- uniform financing of the benefit from federal tax revenue;
- the trend towards the municipalisation of unemployment would be stopped;
- data protection law problems would be considerably reduced;
- the number of people who register as unemployed for only formal reasons in order to retain eligibility for certain social security benefits (e.g., child benefit) would be substantially reduced;
- lower transfer payment needs.
A shift of functions would bring the following disadvantages:
- a rise in the number of unemployed to include employable persons so far taken care of only by local authorities, more precisely, by local social welfare offices;
- the existing bureaucratic structure and efficiency level of the Federal Institute for Employment;
- weakening of the federalism principle;
- the lack of competence for social care;
- the lack of possibilities for assignment to nonprofit work;
- problem of personnel transfers.
Alternative 2: Social welfare institutions and local authorities
A shift in functions to social welfare institutions and local authorities would offer the following advantages:
- since unemployment affects local authorities directly, they also have an interest in purposively combating it, especially chronic unemployment ("closeness to the problem");
- the infrastructural prerequisites and competencies for the necessary backup social aid tend to be in the hands of local authorities or the institutions with which they cooperate (e.g., debt advice, housing aid, addiction aid) ("closeness to the customer");
- the competencies of municipal economic and employment promotion can be effectively linked to the fight against long-term unemployment;
- in relation to the local social infrastructure, the additional function can generate synergy effects in social investment;
- strengthening of federalism;
- better coordination in child care;
- core families ("need communities, family communities") as the normal, accustomed addressees of case care.
A shift of functions would bring the following disadvantages:
- factual division of the labour market into a less problematic group ("close to the labour market") with greater placement chances (unemployment benefit I recipients), who would remain the responsibility of the labour-market authorities, and difficult-to-place people, generally chronically unemployed with major problems, who would remain in the care of local authorities;
- from a statistical point of view, the number of recipients of social assistance would increase strongly, while the number of people dealt with by the employment office would sharply decline - but no actual change would take place in the labour market;
- the sustainable development of a second service and integration system for the jobless;
- withdrawal of the federal government from its responsibility for combating long-term unemployment;
- exacerbation of the difficult position of local authorities and regions with major structural problems;
- weakening of the effects of financial structural equalization through the resources so far available to the Federal Institute for Employment;
- problem of personnel transfers.
- considerable need for training among local authority employees;
- psychological problem for previous recipients of unemployment assistance on being referred to the social welfare office;
- difficulty of supraregional placement on the labour market.
Demands on an Organisation for the Integration of the Long-Term Unemployed
Considering reforms aimed at improving service for the long-term unemployed makes sense only if clear requirements are defined for establishing an effective and efficient organisation to perform this function. It also has to be decided what modules for promoting integration are to be made available and by whom. The MoZarT pilot schemes, with which, for some years now, many cities and counties have been testing various forms of cooperation between local authorities and employment offices, have produced at least one clear insight: without the comprehensive and timely provision of additional social and other services backing occupational integration, the long-term unemployed cannot be lastingly integrated into the labour market. It is striking that these important aspects, sometimes decisive for the success of reforms, have not been to the fore in the current debate.
Practical experience with many unemployed has shown that the following obstacles have to eliminated if integration into the labour market is to succeed: indebtedness, restriction to part-time work, health limitations, lacking mobility or capacity for mobility, lacking or deficient skills, age, reluctance to work, drug problems, inadequate linguistic skills, learning difficulties, psychological problems, lack of a driving licence, unsettled maintenance issues, the lack of child care facilities.
What modules have to be available for successful integration? The following should be mentioned:
- debt advice;
- flexible child care;
- health checks by medical officers of health / rehabilitation;
- means for mobility promotion;
- access to the secondary labour market and free interchange with regular employment ("transitional labour markets");
- complete access to all measures of integration and active labour market policy;
- provision of knowledgeable and expert information and advice;
- profiling, aid planning, assessment procedures, case management;
- good access to regional industry, including regular contacts;
- access to suitable jobs for special target groups;
- in the case of drug problems, counselling/therapy;
- language courses;
- special promotion and suitable jobs for the disabled;
- in the case of psychological problems, counselling/therapy;
- highly qualified, communicative, and psychologically robust staff.
An institution that wants to reintegrate the chronically unemployed into the labour market can operate successfully only if:
- it has access to all the necessary advisory and care modules;
- it has access to all labour market policy instruments;
- it can react flexibly to organisational and budgetary needs;
- reintegration work is bindingly regulated on the basis of integration and performance agreements;
- it has the human resources that permit efficient counselling and care both quantitatively and qualitatively.
The design and safeguarding of the process of counselling, care, and integration are of decisive strategic and substantive importance for the pending reform. All further considerations must take this into account. It is important that quality standards be strictly observed (e.g., process quality, result quality). Functioning controllership and quality management, as well as purposive human resources development would also have to become a matter of course.
The experience of the Cologne job centre shows that these requirements are of great practical importance. Of 100 long-term unemployed (on the basis of some 11,000 long-term unemployed 25 years of age and over) the following persons required additional services to become suitable for occupational integration:
42 needed debt advice, 31 remedial instruction to catch up on missed school qualifications, 29 needed family and health counselling, 29 intensive social medical assessment to clarify or initiate rehabilitation measures prior to occupational promotion, 20 required housing aid, 19 German courses, 19 support in establishing child care, and 7 needed counselling to cope with addiction.
Central Local Authority Organisations with Differing Positions
In numerous statements and reports, the German County Association has expressed its vehement support for the comprehensive welfare and activating support from local authorities for employment benefit II recipients. The association sees the following advantages: local authorities have had far-reaching experience in performing social welfare functions, unlike the employment authorities in their existing form. Direct citizen focus in connection with local political responsibility has in the past produced flexible input and creative problem-solving. In the opinion of the German County Association, the pressure on local authorities to act is increased by the direct, negative impact unemployment has on family and community life. Furthermore, the direct financial relief brought by successful placement is an additional fiscal incentive that benefits other local government functions. The German County Association is convinced that, if the employment authorities were to assume responsibility for employable social assistance recipients, employment office staff would prove inadequately qualified and too few to deal with the new clientele.
This view is not shared by the German Association of Towns and Municipalities and the German Association of Cities and Towns, which have expressed their strong opposition to the municipalisation of hard-core unemployment. In their opinion, labour market policy for the growing group of long-term unemployed has to be seen in close association with economic policy, and for this reason alone should be in the hands of the federal government. A splitting of responsibility for the unemployed would ultimately lead to first and second class employment offices. The employment authorities would be left to cope with the less problematic cases, who have the greatest chance of finding work in the general labour market. Since local authorities would have to deal with the incomparably more difficult clientele of the chronically unemployed, problems in cities and regions, which already have to cope with major structural difficulties, would by exacerbated. It should not be underestimated that unemployment could become an issue in local elections, although the policy instruments for combating it are available only in rudimentary form.
"Unemployment Assistance/Social Assistance"Working Group of the Commission on the Reform of Local Authority Finances
On 27 March 2002, the federal government decided to form a Commission on the Reform of Local Authority Finances; its brief focuses on the future of trade tax and the more efficient design of the transfer systems unemployment assistance and social assistance. The commission set up a working group on "unemployment assistance/social assistance," which presented its report to the commission on 17 April 2003.
It restricted itself to describing the options for reform, including very elaborate calculations.
Depending on the model applied, the working group estimated that between 4.05 million and 5.05 million people would be affected by the planned reform. If account is taken of expenditure for the two transfer systems unemployment assistance and social assistance (only for employable social assistance recipients and immediate dependents) totalling € 28.6 billion, the dimensions of the reform become apparent.
The working group was unable to reach agreement on key issues. Particularly controversial points were the inclusion of the social welfare office clientele in the statutory pension scheme and calculation of the new passive benefit. The definition of fitness for work was an especially sensitive issue: the clearer and more comprehensive the definition, the lower will be the danger of creating new shunting stations between the Federal Agency for Employment and the social welfare offices. On this question, the Federal Employment Service and local authority representatives took diametrically opposing views. Also controversial was the definition of active labour market policy measures. A total of € 6.6 billion is initially planned in the first year for 30 per cent of employable benefit recipients. The money is to be made available as a global budget so that regionally appropriate accents can be set locally in the job centres. The limitation of active labour market policy to about 30 per cent of recipients is questionable. There seems to be no reasonable, substantive justification for this; fiscal considerations are likely to have been the principal argument. The same is true of ensuring better service. Although there was agreement that a front-office ratio of 75 to 1 between service personnel and clients is desirable, no agreement could be reached on mandatory measures to achieve this. Nor could agreement be reached on models for managing the new benefit or financing it.
"Fourth Act for Modern Services in the Labour Market" Adopted - Nevertheless Many Open Questions
The federal government bill introduced into mediation proceedings planned to entrust responsibility for merging employment assistance and social assistance to the Federal Agency for Employment, whereas the draft tabled by the opposition CDU Bundestag parliamentary party and the states with CDU/CSU-led governments wanted local authorities to be responsible for placement, counselling, and benefits for social assistance recipients in search of work.
The Social Code Two (SGB II-Basic Security for Job Seekers) that finally emerged from the mediation committee gives joint responsibility to the Federal Agency for Employment, county boroughs, and counties. Responsibilities are divided.
Local authorities are to provide
- help with integration in work (especially assistance for minors, debt advice, psycho-social counselling, addiction advice, and other one-off aids required for integration);
- cost-of-living assistance (especially payments for rent and heating in the absence of housing benefit).
The agencies for employment are to provide
- help for integration in work (especially integration agreements, job creation, temporary earnings subsidies, etc.);
- cost-of-living assistance (for the employable needy and their dependents).
Agencies for employment and local authorities are required by law to cooperate pursuant to Section 44b SGB II. The funding authorities in the district of each agency for employment have to set up teams in the job centres. The form and organisation of these working associations are to take account of the specificities of the institutions involved, the regional labour market, and regional economic structures. The business of the working association is conducted by a managing director who also represents the group in and out of court.
But, under Section 6b, the Act also provides for so-called option models permitting counties and county boroughs to assume responsibility for all functions under the Act. The details of this "local authority option" are to be settled by federal law ("Option Act"). This act is to set the detailed framework for local authority functions, especially cost reimbursement by the federal government. Controversial points in these arrangements are the reimbursement by the federal government of administration and integration costs for the jobless (lump sums) and integration rates underlying the calculation of lump sums payments. The Federal Ministry of Economics and Labour proposes calculating the administrative cost lump sum on the basis of a front-office service ratio of 1 to 75 (service personnel to client family) and a back-office ratio of 1 to 140/150. Per employable adult this means an annual lump sum of € 1007. While there are prospects for agreement on administrative costs, the vast majority of actors consider the proposed lump sum of € 1971 per year and employable adult for active labour market integration to be far too low. Activation rates are just as controversial: the 52 per cent set for the 15 to 24 age group is regarded as far too low in view of the requirements the Act lays down for this target group. For other employable persons, the federal government has reduced the activation rate from about 30 per cent to 23 per cent. If these rates become reality, it is feared that a large proportion of the difficult clientele would either be permanently excluded from activation measures or included only after a considerable time lag, making integration much more complicated and expensive.
There is also disagreement about how the federal government should reimburse local authorities (per extended intra-entity loan or by amending the Basic Law). In all, the basis for local cooperation is far from being satisfactorily settled.
For example, the boundaries of agency for employment districts often do not coincide with those of local authorities, the legal form for cooperation is still open, the distribution of responsibility for technical and legal supervision and personnel arrangements remains to be decided, and, last but not least, the financial impact remains a contentious issue - despite assurances by the federal minister of labour that the new statutory arrangements will ease the burden on local authorities by a total of € 2.5 billion.
Far-Reaching Reform of the Federal Agency for Employment
The plans of the federal government to assign all employable recipients of employment benefit II and their dependents to job centres under the responsibility of the Federal Agency for Employment was greeted with enthusiasm by the then Federal Institute. On 22nd February 2003 the federal government adopted a two-stage plan for the comprehensive reorganisation of the institute. On 9th July of that year, the presidency of the administrative board adopted the expanded concept for reform of the Federal Institute for Employment. While the so-called Hartz Commission focused on job centres as the central contact and service points for all job seekers, the management of the Federal Institute wanted to set other accents in dealing with clientele. Three key goals are intended to boost success and cost-effectiveness : increasing placement efficiency, improving target group integration opportunities, and promoting employability.
This is to be achieved not only by a marked improvement in employer service but also by installing a service centre and establishing an efficient customer centre with a client-employer interface and a client-employee interface, in addition to the benefit payment service. Although the Federal Agency for Employment sees the job centre as an integral part of every agency for employment and a contact point for all job seekers, it is not clear how the job centre is to relate to other organisational entities and how interfaces are to be organised. The introduction of separate accounting categories in the interests of the transparent use of contributions and tax money is sensible in itself. But insiders fear that this could, under certain circumstances, lead to administrative division of the clientele with far-reaching repercussions for the quality of service. Massive attempts by the Federal Institute for Employment to induce the "unemployment assistance / social assistance" working group to define employability in terms of closeness to the labour market rather than in accordance with Section 43 Federal Social Code VI shows that these fears were not unfounded.
Experts agree that, with its present structure, the Federal Agency will have great difficulty coping with its own organisational reform at the same time as assuming responsibility for another 2.2 million or so employable recipients of social assistance. The staff qualified to deal with this specific clientele is quite simply not available. In the current reform discussion, it is striking that the personalisation issue - although crucial for the success of the entire reform - has been treated with extreme reserve. The idea that efficiency gains, e.g., through lump-sum passive benefits, could create the additional 12,000 positions needed for a successful support service ratio is somewhat unrealistic. We leave it to the reader's imagination whether a staff member who has carried out complex unemployment assistance calculations for twenty years can be converted into an enthusiastic placement officer. The old centralistic and bureaucratic structures of the Federal Institute are one reason for the lack of success in combating unemployment, especially in the case of the difficult-to-place long-term unemployed. The organisation of substantive and operative mobility and a global budget are therefore vitally important for the future success of the agencies for employment and job centres.
Macro-Economic Efficiency Gains
The "unemployment assistance/social assistance" working group of the Commission on the Reform of Local Authority Finances expects that improving service support will permanently reduce the number of benefit recipients by between 15 and 20 per cent. The "quantification" working group put the savings in transfer payments and administrative costs at about € 3 billion (cf p. 31 ff. of the final report).
But faster placement through more intensive service can in individual cases also shorten unemployment duration and thus lower demand for benefits or aid. Although exact data are not available, estimates by the "Modern Services in the Labour Market" Commission give some indication: the commission reckons that a one third reduction in the average period of unemployment (from currently 33 weeks to 22 weeks) would bring savings of some € 19.6 billion. Whereas the resulting "profits" (savings) accrue primarily to the Federal Agency and social welfare institutions, there are other "beneficiaries" of the reform, as well.
Still more difficult to quantify are the factually uncontested gains in efficiency resulting from more effective (better suited) staffing and especially the lower selection costs accruing to employers.
Just as hard to quantify and nevertheless economically significant is the reduction in dequalification and, possibly, deprivation through a stronger labour market dynamic.
Since a more vigorous dynamic raises hopes of higher employment, at least some increase in national income can be expected, which, especially if it affects middle income levels, could generate higher demand for household or consumptive services (so-called accelerator and multiplier effects).
Finally, a forceful labour market, if accompanied by intelligent policy tailored to market needs, can improve the overall skills level of labour potential, boosting labour productivity in the medium to long term.
The legal framework for social security under the given reform model will naturally have a financial impact on health and pension insurance.
From the point of view of the economy as a whole, the reform plans can be considered well founded. But reaching a compromise on the different models is made extraordinarily difficult by the different ways in which they affect the parties involved (federal government, Federal Agency for Employment, local authorities, pension insurance schemes, etc).
Local Authority Experience Indispensable in Work with the Long-Term Unemployed
Given the complex situation, many local authority and employment service practitioners recognise that, if responsibility for the category of person described is transferred to the future agencies for employment, everyone involved would be wise to make full and integral use of the decades of local authority experience in reintegrating the often socially problematic clientele. In contrast to the Federal Institute for Employment, local authorities have been able - especially on the basis of Sections 18 to 20 Federal Social Assistance Act - to develop very creative, flexible structures at the local level, often in cooperation with others, to ensure the successful reintegration of the long-term unemployed.
The staff working in this field now possesses knowledge that no-one can afford to ignore. If only because of the quantitative dimensions of the problem, the agencies for employment would be well advised to talk to those responsible in local authorities to ensure a smooth transfer of clientele. The intensity of the cooperation needed would be lessened if the job centre were given the scope to develop compact organisational units with decentralized structures. Since local authorities and job centres have to rely on one another, the suggestion of the Bertelsmann Foundation to institutionalise cooperation by means of a nonprofit limited liability company solution is well worth considering. The working associations provided for under Section 44b Federal Social Code Part II are an important basis for cooperation allowing local authorities to contribute both their experience in employment aid and the skilled staff urgently needed by the Federal Agency. The draft standard working association agreement of 31st March 2004 suggests that cooperation between local authorities and agencies could be possible between equals. The authors are concerned about the wait-and-see attitude displayed by many local authorities with regard to the effects of the reform. The remaining time should be used to clarify many individual issues, including staff transfer problems. At the local level, suitable solutions can often be found more rapidly and easily when the parties are willing - in keeping with the principle "think globally, act locally."
References
Bundesanstalt für Arbeit (ed.) (2003), Geschäftsbericht 2002, Nürnberg.
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Deutscher Städte- und Gemeindebund (ed.) (2004), Argumentationspapier zum Optionsmodell - Hartz IV, Berlin
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