Berlin The labor market in Germany survived the second year of the coronavirus comparatively unscathed. Compared to the previous year, the number of unemployed in 2021 fell slightly by three percent to around 2.6 million.
But the costs of unemployment have increased further compared to 2020 – by around five billion euros to almost 68 billion euros.
This is mainly due to the fact that the composition of the group of unemployed has changed and the costs per capita have increased. Not included in the total are the expenses for the short-time allowance, which is used to avoid unemployment.
“The costs of unemployment have fallen sharply since the 2000s, but the pandemic has interrupted this trend,” says Enzo Weber from the Institute for Labor Market and Occupational Research (IAB), who made the calculations together with colleagues.
The Nuremberg researchers not only take into account expenditure, for example for contribution-financed unemployment and short-time work benefits or tax-financed unemployment benefit II, colloquially Hartz IV, but also reduced income that the tax authorities and social security funds miss out on due to unpaid taxes and social contributions. For the calculation, the IAB assumes an average income that the unemployed could theoretically earn if they were employed.
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Of the 68 billion euros, social benefits for Harz IV recipients accounted for the largest share at 20.1 billion euros or almost 30 percent. Unemployment insurance paid out 19.4 billion euros to the insured. The transfer payments, including the social contributions paid, amounted to 39.5 billion euros or 58 percent of the total costs.
Eleven billion euros in lost tax revenue
While the total cost of unemployment rose by around 8 percent, the cost per capita rose by around 11 percent. Unemployment benefits are based on previous earnings. In 2020, the corona pandemic hit many employees in sectors with rather low wages, such as gastronomy or retail. Accordingly, these people only received relatively small unemployment benefits.
In the past year, more employees from the manufacturing sector with higher earnings were affected again, which was reflected in higher unemployment benefits per capita.
According to calculations by the IAB, the federal, state and local governments lost €11 billion in tax revenue as a result of unemployment. The social security funds had to forego income of 17.4 billion.
For example, no unemployment insurance contributions are paid for the unemployed and no pension contributions for recipients of unemployment benefit II. Pension insurance alone bears 14 percent of the total costs of unemployment.
Corona-related additional expenses
With the corona-related additional spending, a long-term downward trend was broken. In 2019, the last year before the pandemic, the Federal Employment Agency (BA) only spent about 40 percent of the funds it paid in 2005. At that time, the number of unemployed had peaked at around five million. Spending was then back to 60 percent in 2020 and 66 percent in 2021 of the 2005 level.
Measured in terms of gross domestic product (GDP), the cost of unemployment fell from 4.2 percent in 2004 to just under 1.5 percent in 2019. Last year, due to the corona, the proportion was higher again at almost 1.9 percent.
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Not included in the data are the significant funds for short-time work benefits, which are intended to help avoid unemployment. The BA spent 21 billion euros on this alone last year, compared to almost 23 billion euros the year before.
Because the federal agency had used up its reserve of almost 26 billion euros and was no longer able to cover the expenses from its own funds, it received liquidity assistance from the federal government in the amount of 16.9 billion euros last year. In the previous year, taxpayers had already helped out with 6.9 billion euros.
Corona has shown that you have to be financially prepared for sudden shocks on the labor market, says IAB researcher Weber. “That’s why it’s important to build up a sufficient reserve in unemployment insurance over the next few years.” The Nuremberg institute puts this at 0.65 percent of GDP, which would correspond to around a good 25 billion euros.
However, this volume will be difficult to achieve in the foreseeable future. The IAB writes that it can only succeed if the BA’s expenses are reduced substantially, the financial situation is improved by an exceptionally good development of the labor market or the contribution rate is increased more. At the turn of the year, the temporary reduction in the contribution rate expires, so that it rises again from 2.4 percent to 2.6 percent.
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