Before and After the Hartz Reforms: The Performance of Active Labour Market Policy in Germany



14


Lena Jacobi and Jochen Kluve

ration as the unemployment benefit would have been paid for if the person
had remained unemployed.

Before the reform, policy makers had already tried out different forms of
wage subsidies for low income earners (e.g. “Mainzer Modell”). The Hartz
reform finally implemented a variant of previous models, the so-called
“Minijobs” and “Midijobs”. These schemes are generally applicable, i.e. they
are not confined to the unemployed. A Minijob is ajob generating an income
below 400 € per month. A person holding a Minijob is exempt from social se-
curity contributions, which effectively increases net wages. Jobs with incomes
between 400 and 800 € are called Midijobs. For these jobs, social security sub-
sidies are paid at a decreasing rate, depending on the income, i.e. gradually
fading from zero contributions at 400 € into full contributions at 800 €. Both
Mini- and Midijobs thus constitute “jobs with reduced social security contri-
butions”.

3. (c) Labour Market Deregulation

Deregulation of labour market institutions took place regarding temporary
work, dismissal protection and the regulation of fixed-term contracts. The
wage setting process, on the other hand, remains highly centralised.

Regarding temporary work regulations, the reform intended to facilitate the
expansion of the already booming sector of temporary work significantly.
Temporary work agencies were legalised in 1967 and formally regulated in
1972. Since then, temporary work had been regulated rather restrictively for
many years, and had been forbidden completely in the construction industry.
Since the late 1990s, the law has been gradually liberalised. The Hartz reform
finally abolished restrictions on synchronisation, re-assignment, fixed-term
contracts and the maximum duration of temporary employment. A new rule
was introduced requiring that a temporary work agency must either guarantee
equal pay and equal treatment of temporary workers and regular workers or
join a collective bargaining agreement between trade unions and employers.
Temporary work is now also allowed in the construction industry, provided
that a collective bargaining agreement applies. So far, however, no such
contract has been agreed upon. As already mentioned, the law introduced a
public sponsored Staff Service Agencies as a new form of placement-ori-
entated temporary work for hard-to-place persons.

With respect to dismissal regulations and fixed-term contract regulations, the
reform did not deregulate standard employment relations in a general way.
Rather, it simplified and widened the number of cases for which exemptions
from the generally rather restrictive regulations apply. Before the reform, for
instance, exemptions from restrictions on fixed-term contracts were given for
employees aged 58 and over. For these employees, fixed-term contracts could



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