Germany's reform Chancellor - part II
Gerhard Schroeder has launched a round of painful reforms aimed at trimming Germany’s once generous welfare state and introducing greater flexibility into the nation's jobs market. But as Andrew McCathie reports, a raft of labour market reforms is already starting to help wind back high unemployment numbers.
Headline unemployment in Europe's biggest economy dropped by 107,000 to 4.2 million in September, with economists pointing to the reforms, which include incentives for the unemployed to start their own business and cutting people off unemployment benefits if they fail to look for work as a reason for the fall.
Since the start of the year, more than 63,000 unemployed people have taken up the government's offer of financial support to transform themselves into a small business. Among those formerly receiving unemployment benefits some have launched new companies ranging from the production of exotic mustards to cosmetics and health care.
Originally, the government had expected that 20,000 enterprises would be created under the programme during the full year. But by July the numbers setting up their own business had reached 42,300.
Called "Ich AG"(Me Inc), the scheme was introduced by Schroeder's Social Democrat-led government as part of a raft of measures for reforming Germany's inflexible job market.
Moves underway to open up skilled trades and professions in Germany such as master tailors, cobblers, tile layers and goldsmiths to less qualified workers are also widely expected to give a further boost to the country's new booming Ich AG movement.
"The programme is a great success," said a spokesman for the Labour Office of the project, which is considered a first step towards full self employed status.
According to official data at the end of the first half of the year, 80,000 people who were previously classed as jobless are now considered to be self-employed, an increase of a third compared to the same period last year.
A further sign the reforms are taking hold is that the number working for the personal service agent which is aimed at quickly placing people in work and represents a key part of the government's reforms, has jumped by 50 percent over the last four weeks.
But as a reminder of the fragile state of Germany's labour market, unemployment in unadjusted terms was up by 265,000 compared to September 2002.
Economists also warned that September data did not signal a turnaround in unemployment. Ralph Solveen, economist with Germany's Commerzbank AG, predicted the arrival of cold winter weather would lead to an escalation in numbers out of work in the country with seasonally unadjusted unemployment creeping up towards the five million mark.
Indeed, many analysts remain sceptical about the job reform programmes, seeing them as essentially window-dressing and failing to tackle the deep-seated problems confronting the German labour market.
But they also do not rule out surprises as a result of the government's labour reform programme.
Figures show that 930,000 new jobs were created in the first 100 days of the so-called mini-jobs programme, which was launched in April.
The aim of the programme is to promote low-income jobs, with the threshold for tax and social security payments raised from EUR 325 to EUR 500 for household and childcare workers.
As a measure of the government's commitment to the Ich AG programme as a way of reducing unemployment from its current politically explosive level, Berlin has now announced that those having formed companies under the programme are allowed to hire workers.
What is more, both the mini-jobs and the Ich AG programmes can also be merged together with those incorporating themselves as small firms taking on workers under the mini-jobs scheme.
With Ich AGs receiving state aid totalling up to EUR 14,400 over three years, the government also hopes that the plan will help to wind back Germany's thriving black market.
In a further bid to encourage Ich AGs, unemployed people incorporating themselves and generating income of up to EUR 25,000 are to be taxed to a flat rate of 10 percent, instead of the current 19.9 percent.
But besides scepticism on the part of economists about the Ich AGs, many of those seeking to sign up for the programme say that the financial support, which comes down EUR 600 a month in the first year is not enough.
[Copyright Expatica 2003]
Subject: German news