Germany adopts unemployment reforms

Germany plans a major economic overhaul in order to improve incentives to find work and to respond to surging competition from China, says G. Thomas Sims of the Wall Street Journal. The drive for change comes amid slow economic growth and high unemployment:

In 2004, Germany's economy expanded by a slight 1.2 percent, as compared to an estimated 4.4 percent in the United States.

Germany's jobless rate is expected to rise from 10 percent to 12 percent over the next few months; in the nation's capital, Berlin, unemployment sits at a remarkable 16.7 percent.

The economic reforms will result in two major changes in German law:

Payments for those still out of work after expiration of their standard unemployment benefits will fall to the level of welfare recipients -- about $470 a month plus housing and heating costs.

The duration of full employment benefits will fall from almost three years to one year for those under 55 years of age and to 18 months for those 55 and older.

It is hoped that the new measures will force more than four million Germans to look harder for jobs and, if successful, inject much-needed productivity into the economy, says Sims.

Source: G. Thomas Sims, Germany Under A Microscope, Wall Street Journal, December 31, 2004.

For WSJ text (subscription required) http://online.wsj.com/article/0,,SB110444195358313161-search,00.html

For more on Economic Stagnation http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 11 January 2005