Lena Jacobi and Jochen Kluve
comparable family with a single earner receiving an average unskilled
worker’s wage. In East Germany the respective difference was only 11.5%.
Compared to other countries, German active labour market policy in the
1990s was characterised by high expenditure levels and long durations of
programmes. Training and public job creation measures were the most im-
portant programmes in terms of expenditures and number of participants.
Measures supporting the direct integration into regular employment (e.g.
wage subsidies and start-up subsidies) only played a minor role. Generally, job
search assistance and monitoring by the public employment agency was given
rather low priority. Sanctions for low engagement in job search activities were
rarely implemented. For most programmes, the law narrowly defined the type
of person who was eligible for participation in a programme. Assignment to
programmes was not based on a systematic profiling of each costumer, but
rather on caseworkers’ discretion.
3. Core Elements of the Hartz Reforms
As unemployment continued to increase in the 1990s, the social security
system ran the risk of financial collapse and the need for a comprehensive
reform of the institutional setting of labour market policies became urgent. In
both the political and academic debates the benefit system was criticised for
creating adverse work incentives and increasing long-term unemployment,
deteriorating skills and thus worsening the mismatch on the labour market.
The public employment services were blamed for operating inefficiently and
customer-unfriendly and failing to push jobseekers sufficiently to search for a
job. The mix of active measures, focusing on training measures and public job
creation schemes with long durations, was criticised for retaining participants
out of the open labour market instead of integrating them. Such criticism was
based on evaluation studies of active measures that indicated severe
locking-in effects and zero or even negative post-participation treatment
effects of many programmes.
In 2002 the government reacted to, and took advantage of, a scandal involving
the federal employment office3 by setting up an independent expert com-
mission, the “Commission for Modern Labour Market Services” (Kommission
für Moderne Dienstleistungen am Arbeitsmarkt). The commission’s recom-
mendations triggered a series of radical policy changes, the so-called Hartz
reforms4, which were subsequently implemented during the time period
2002-2005. The set of reform elements coalesce to a tripartite reform strategy
3
3 The federal employment office presented palliated figures on the quantity of unemployed
workers who the federal employment office claimed to have re-integrated into the labour market.
4 Named after the commission’s director Peter Hartz, the personnel director of Volkswagen at
the time.