Is it better to use carrots or sticks to get people back into work? For the past 25 years or so, a lot of countries have gone big on the latter. Germany’s Hartz IV reforms in the mid-2000s, which chivvied the unemployed to look for work and imposed financial penalties on people who refused job offers, are perhaps the most famous example. Although economists still debate their effect, unemployment plunged over the following decade and Germany shed its label as the “sick man of Europe”.
Now Germany wants to change tack. In January, Chancellor Olaf Scholz’s coalition of Social Democrats, Greens and liberal Free Democrats replaced Hartz with the “Bürgergeld” or citizen’s income, which promises to be less punitive and more supportive of the unemployed. “We do not want to place recipients of benefits into just any job as quickly as possible any longer,” the labour ministry has explained. “The focus is now on initial and further training, offering long-term prospects for job seekers.” As well as higher benefit rates (up from €449 to €502 for a single adult) and more vocational training, the coalition had initially wanted to bring in a six-month “trust period” in which jobseekers would not face sanctions.
There is an economic rationale for changing course, says Andrew Watt, an economist at the Institut für Makro?konomie und Konjunkturforschung. With very high unemployment, there’s a big incentive “just to get people into jobs, but once unemployment is down, the necessity of forcing people to take any job goes down, and then from a business point of view and a government point of view, you get more interested in, ‘Are people in high productivity jobs, jobs that are good for their health, jobs where they can stay past 65?’”