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Labour, social policy, investment – What's best for Germany?

Panel discussion with Steffen Kampeter, Anke Hassel, Elisabeth Niejahr and Marcel Fratzscher (shown left to right).

A talk with Hertie School Prof. Anke Hassel, BDA German employers association Director General Steffen Kampeter and DIW President Marcel Fratzscher.

Fourteen years after Germany introduced the ambitious labour and social policy reform Agenda 2010, even its critics concede it had a role in the country’s recent economic success. The reform’s improbable champion, social democratic (SPD) Chancellor Gerhard Schröder, introduced drastic cuts in unemployment and social benefits at a time when Germany was dubbed the “sick man of Europe”, suffering from over 10% unemployment and stagnant growth.

Anke Hassel, Hertie School Professor of Public Policy and Academic Director of the Hans Böckler Foundation’s Institute of Economic and Social Research (WSI), was working on a project for the government in 1999 to better understand the impasse over reforms that were so obviously necessary. “That we had to reform the jobs market was clear. That there were areas needing lots of work was also clear. ... But enacting such a radical reform was really a very abrupt shift and that really took me by surprise,” Hassel said in a discussion round on jobs and social policy, jointly hosted by the Hertie School and the DIW on 30 March.

In a heated discussion about whether the Agenda 2010 went too far and now needs overhauling as called for by current SPD chancellor candidate Martin Schulz, Hassel spoke with Steffen Kampeter, now Director General of the Confederation of German Employers’ Associations after 26 years as a Christian Democratic Union (CDU) representative in the Bundestag, and Marcel Fratzscher, President of the DIW German Institute for Economic Research. Elisabeth Niejahr, journalist at Die Zeit, moderated.

Since the Agenda was enacted, Germany has become a roaring economic powerhouse, with unemployment at around just 4% and a large trade surplus. A more flexible jobs market and the reduction of non-wage labour costs contributed, but the euro has also strengthened Germany’s export position in Europe and demand for German goods has risen globally, Hassel pointed out. “One should not overestimate how much the Agenda 2010 contributed to economic development, but it did contribute some.”

All three discussants said that despite the good numbers, there are structural problems brewing under the surface. Comparing Germany’s current situation to football, Kampeter said: “At the moment, this team is looking a little depleted. Whether we will still play in the Champions League in the next season or the season after that will be decided in the next legislative period.”

While the German model had its strengths, Hassel said that beneath the “glittering façade” there was “…a dark side, which also has something to do with the Agenda 2010.” Social inequality arising from a new low-wage sector, the persistent wage gap between men and women, the impoverishment of single parents – mostly mothers – and the failure of the pension system to encourage retirement savings, especially among young people, are just a few of the issues that are on people’s minds ahead of the September election. And the public links many of these issues to the harsh cuts of the Agenda 2010.

“Yes, it was an important reform, but let’s not give it more credit than it deserves – it was targeted at a specific segment, and I think it was basically important and necessary, but I believe we massively overestimate its effect,” said Fratzscher of the DIW.

But the BDA’s Kampeter said chancellor candidate Schultz’s calls to overturn parts of the Agenda 2010 were simply playing on popular fears. “That it’s possible to address fears this way is utterly true, but one doesn’t solve the actual problems,” he said. The fears are real, but they should be allayed through policies such as investment in education and qualification: “Formal skills will probably change in the coming years, such as industrial manufacturing processes through technological change. Re-education measures will be needed.” He’d rather hear a debate about “the possible devaluation of skills, how to deal with digital disruption in operations, mechanical skills, how can this be dealt with on-site, which approaches are there to making work more flexible.”

Defending the view that policies directly related to Agenda 2010 had created new social risks which needed addressing, Hassel said, “We have all kinds of truly precarious types of employment, which are all connected and now integrated into core areas of industry and lead to permanent marginalisation.” Germany now has around a million temporary contract workers, which it did not have 20 years ago, it has loosened the rules on other forms of on-demand work and has created “mini-jobs”, in which people who earn less than €400 on the side are exempt from social contributions, she said.

The Federal Employment Agency, however, has said that over 50% of the marginally employed are either under 25 or over 60 years old, Kampeter pointed out. Flexibility in the market had opened up opportunities for people looking for an alternative to full-time employment:  “If one characterises this as ‘precarious’, then I think this creates the wrong impression.” Kampeter said many of these people simply have other reasons for seeking part-time work. “I think discounting this as a new social challenge isn’t fair – these are schoolchildren, students, pensioners who aren’t aiming for full-time work. Surveys show that 80% of mini-jobbers are happy with their situation and have other motives for taking these jobs.”

Nevertheless, Hassel rebutted that job satisfaction doesn’t mean such employment is good for people – or for society as a whole. “Employment is precarious if I can’t live off of it and it doesn’t support me later with an old-age pension,” she said. “Everyone who works today for a longer period of time in a mini-job – and not as an additional job, but as their primary source of income – will later end up drawing social benefits…and then this employment is precarious regardless of whether I say I’m happy.”

Asked by Elisabeth Niejahr about their biggest wish for the next legislature, all three named investment in education and qualified skills, among other things.

 “We invest too little,” said Marcel Fratzscher. There are over a million open jobs due to the lack of qualified workers, but this did not justify the growing low-wage sector. “There is absolutely no reason to say that we need this big low-wage segment to create competition,” he said. “Today there are many more people who are in danger, despite the fact that they work. There are enough positions, enough opportunities, and I think the problem lies in the lack of qualifications.” Most people who land in the low-wage sector are those with no training or apprenticeship, or sometimes haven’t even finished school, he said.

Investment in education, training, innovation and infrastructure, and the large wage gap between men and women – these are the big challenges for the next government. And although the economy appears in good shape now, there’s no guarantee this will continue, all agreed.

“It’s a scandal when we look at the expenditure on education and see that Germany is below average – this always really makes me angry, I cannot understand it and it is at the top of my wish list,” said Hassel.  In addition, she says the position of women in society is a top priority, especially the wage gap between men and women and the fact that single mothers are among those most in danger of falling below the poverty level. The German social system has not addressed the big structural change that a majority of women now work. “It is still organised as it was many decades ago – centred around a man who works with a wife at home,” she said. “The social system has not adjusted, it still lags behind.”  

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