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

Performance of Active Labour Market Policy in Germany

Figure 1

Unemployment and ALMP Participation in Germany
1991 to 2005; in millions

— unemployed persons

----training programme participants - — - job creation programme participants

Source: IAB Nürnberg.

ployed, in contrast, were - and still are - comparable to many other OECD
countries. Unemployment benefits were financed by unemployment in-
surance contributions shared by employers and employees, while unem-
ployment assistance was financed by taxes. In principle, unemployment as-
sistance was means-tested on a yearly base. It was possible to complement un-
employment insurance by tax-financed social assistance. Generally, every
household whose income fell below a certain income threshold qualified for
social assistance. The German benefit system combined generous benefit
levels with high benefit reduction rates that taxed away most of the additional
earned income of a benefit recipient. Thus, incentives to take up a job were
very low, especially for low skilled workers. Engels (2001) calculates that a
typical family with three children receiving social assistance in West Germany
in the year 2000 received an income that was only 15.3% below the income of a

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