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affected by an overall reduction of stable contribution revenues (endangering the financing
base of programmes) and the fact that less stable employment and lower growth rates tend
to produce especially higher structural levels of unemployment (especially with rigid labour
markets) puts a greater strain on corresponding benefit schemes (Pierson 1998: 544). Also,
the effect may be indirect, as the governments of advanced welfare states face a ‘trilemma
of the service economy’. In line with this argument, governments need to increasingly bal-
ance conflicting goals of employment growth, wage equality and budgetary requirements
(Iversen/Wren 1998 in Pierson 1998:544). I will readdress the problem below when the
response of Continental welfare states is explained.
In addition, a related argument is that the past expansion of welfare states led to mature and
costly welfare states and sizeable fiscal commitments for governments that hamper policy
flexibility, constantly create budgetary pressures and thus set extra constraints on govern-
ment use of revenues. Of these commitments, health care and pension schemes make up the
largest proportion. Sizeable commitments are also claimed to drive up unemployment be-
cause of upward pressure on the taxation of labour through increasing social policy contri-
butions (Scharpf 1997). During the mid-1970s, these contributions as a share of gross wage
still totaled about 30 percent, but rose to over 35 percent in the mid-1980 and reached a
critical threshold of 40 percent in the mid-1990s (Kaltenborn et al. 2003:673).3 In 2003,
contributions had reached about 42 percent of gross wages (including both contributions
from employers and employees) with contributions for pensions (19.5 percent) and health
care (on average 14.3 percent) making up the bulk of the amount. The sensitivity of experts
(especially economists) and policy-makers to the (supposedly adverse) effects of non-wage
labour costs and its employment effects has considerably increased since the mid-1990s.
More recently, it has resulted more recently in concrete pledges of policy-makers to at least
contain or lower the rise of contribution rates: to give two examples, the 2003 reform pro-
gramme ‘Agenda 2010’ of Chancellor Schroder was intended to decrease non-wage labour
costs from 42 to at least 40 percent.4 Also, the current CDU/CSU-SPD government took up
the issue in its coalition agreement of fall 2005, striving to keep social contribution rates
durably below 40 percent.5
3 The strong rise of contributions in the 1990s was caused by a number of extraordinary factors: the in-
troduction of long-term care insurance; additional burdens for social insurances because of reunification
and the increase of other sorts of (‘versicherungsfremde’) expenditures, such as pension payments to
migrants from the former ethnic German areas in Eastern Europe and the former Soviet Union (Ibid:
674).
4 Speech by Chancellor Schroder to Parlament, Mut zum Frieden und Mut zur Veranderung,_14.03.2003,
Bundestag parliamentary protocol 15/32, p. 2479-2493.
5 Coalition agreement of CdU/CSU-SPD 11.11.05, 'Gemeinsam für Deutschland - mit Mut und Mensch-
lichkeit’, p. 21, source:
http://www.bundesrat.de/nn_38758/DE/foederalismus/bundesstaatskommission/Mitglieder/Koalitionsvert
rag,templateId=raw,property=publicationFile.pdf/Koalitionsvertrag.pdf