Does work still pay in Germany?

Olaf Scholz' major social reform, Bürgergeld, increases unemployment payments while dropping the penalties on people who don't find work. Some say it rewards laziness.

Photo by Adrian Swancar on Unsplash

Dear Reader,

Some political debates are as old as politics itself. Such as the one about whether giving alms to the poor makes them lazy.

Last year, Olaf Scholz’ government introduced a new welfare reform to replace the stringent old Hartz IV system. Given the friendly sounding name Bürgergeld (Citizen’s Money), the new dole system relaxed the penalties imposed for not finding a job while payments also shot up by 12 percent. Nobly, the government pledged that the new system would train people up to get good jobs instead of hounding them into low-paid work.

This January, Bürgergeld will increase by another 12 percent, bringing the base monthly payment to €563. That might not sound like a lot, but the state also pays your rent and heating bills if you’re unemployed. In total, monthly payments for a single person quickly accumulate to around €1,200 - that’s not far off the post-tax minimum wage of €1,400.

The issue is complicated somewhat by the fact that low-wage workers often also get some state support. Nonetheless, a study by the Kiel Institute for the World Economy (IfW) arrived at the conclusion that the pay gap between not working at all and slaving away on the minimum wage is, in effect, just over €2 per hour.

The IfW’s conclusion is pretty unambiguous:

“The increased rate of the Bürgergeld in conjunction with less pressure to take up work will in many cases ensure that the incentives to work are too low to motivate people to leave welfare support or to stay in their job.”

Those fears appeared to be confirmed last month by a survey carried out by the Federal Association of the Cleaning Trade which found that two thirds of its members had already been confronted by employees who quit because they would rather receive welfare.

Reporting on the survey, conservative tabloid Bild screeched that: “First sector reports massive rise in resignations!” Respectable broadsheet Frankfurter Allgemeine Zeitung claimed that: ‘Bürgergeld is better than work’.

As if that wasn’t enough, news came in at the start of this month that the entire Bürgergeld budget for 2023 of €23 billion had already been spent, leading the labour ministry to go cap in hand to the treasury to beg for a spare €2 billion to see it through to the end of the year.

Unsurprisingly, these negative headlines have brought the conservative Christian Democrats to the barricades.

“If you don't want to work, you don't have to - but then you shouldn’t expect the general public to pay for your living expenses,” CDU party secretary Carsten Linnemann thundered this week as he declared that his party would abolish Bürgergeld if they win the next election.

But there is more.

There is also the highly delicate issue of the Ukrainians…

As an act of solidarity, the Scholz government last year decided that Ukrainian refugees would get Bürgergeld rather than the more meagre refugee payments that Syrians, Afghanis and such folk get. At the same time, almost no pressure was put on them to find work.

Sixteen months later, less than 20 percent of Ukrainians have found a job. With over a million Ukrainians now here, the costs are massive - half a billion euros every month. And they only look worse when compared to neighbouring countries like the Netherlands and Poland where around 70 percent of Ukrainian refugees are in employment.

One frustrated local politician (from the Social Democrats) commented: “we made it too easy for them. In the end, their sofas are more comfortable than a German course.”

The CDU are careful about what they say about Ukraine in general. But CDU state leader in North Rhine-Westphalia, Hendrik Wüst, left no doubt about his opinion when he said “if the system doesn't work, you have to change it.”

So, is Bürgergeld too generous? Does it mean that low paid work just isn’t worth the bother anymore?

Well, it’s a little more complex than that.

Firstly, it is not as if Bürgergeld has done away with all the old sanctions. People who decide to quit their jobs (rather than getting fired) are still barred from receiving welfare payments for three months. Plus, if you don’t work you can’t pay into the state pension scheme - meaning you’ll get less in retirement.

Secondly, the evidence that people are quitting work in large numbers is pretty thin.

In the much discussed cleaning sector there has actually been a steady decrease in the number of people leaving their jobs over the past decade. And there is no evidence that that trend has changed since Bürgergeld was brought in at the beginning of the year.

Meanwhile, although joblessness has crept up overall over the past year, you’d need to go back to the 1970s to find a significantly lower level than the current rate of just under six percent.

“Yes, it is theoretically possible that job uptake would have increased this year without the introduction of the Bürgergeld,” argues Enzo Weber, an economist at the state-funded Institute for Labour Market Research (IAB). “But, in the midst of a persistent economic downturn, that is pretty implausible. For almost four years now, one crisis has followed the last, and over this period, we have seen a consolidation in unemployment.”

In other words, the fact that unemployment has gone up during a period of recession is hardly something that should surprise us.

Thirdly, the example of the Ukrainians, while seemingly egregious, is actually complicated.

The IAB has argued that the real reason that so few of Ukrainians are in work is because Germany is determined to place them in the highly skilled profession they are already trained for. That means months of intensive language courses and practical training to make sure they’re ready for the German job market.

The pay off will be seen further down the road but it’ll be worth it, the IAB argues.

And there is something else that “sad and wrong-headed” conservatives are missing, argues prominent left-wing economist Marcel Fratzscher: “For the vast majority of people, work is meaningful. They don’t just work to have a decent financial livelihood, but also because work is part of a fulfilling life.”

Ultimately, it is too soon to tell just what good (or bad) Bürgergeld has done. To my mind, both sides are making the debate a bit too easy for themselves.

Sure, conservatives have been cooking a fairly thin soup with their headline-grabbing attacks about ‘work no longer paying.’ But, in an age of massive labour shortages, should the bar for unemployment really still be the past few decades of labour oversupply while the baby boomers were in their prime?

In the gastronomy sector alone today, there are currently 65,000 unfilled positions. It’s not exactly a sector that one needs a PhD to get into.

It seems to me that the government might now be so fixated on qualified labour that its approach will become too blinkered.

For instance, does it really make sense to spend so much time and effort training Ukrainian refugees when it is a fairly safe bet that, unlike migrants from other parts of the world, most of them will return home once the war is over? (Yes, I’m making the this assumption based on the fact that most of them are women whose husbands are fighting on the front.)

It seems like, as in so many areas of public policy, Germany risks letting the perfect become the enemy of the good.

At any rate, the conservative attacks have certainly ruffled the government.

Labour minister Hubertus Heil recently announced a “job turbo” for Ukrainians in which they would be pushed into job centre interviews every six weeks. And, this week, he wagged his finger at ‘quiet quitters’ on an evening talk show, warning that “anyone who is stupid enough to quit because of Bürgergeld won’t get any Bürgergeld - they’ll be blocked for three months!”

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