Dusseldorf The social market economy has been the foundation of overall economic development in the Federal Republic over the past seven decades. The core of every market economy are the market prices, which indicate and overcome shortages. In Germany there is no free, but a social market economy in which some market processes and their results are corrected for good reasons.
Last but not least, it is the task of the welfare state to help all those who are in need, whether through individual strokes of fate or as a result of structural change, which means that companies or sectors come under pressure and have to reposition themselves or disappear from the market and lay off the workforce. Unemployment insurance dampens fears of change by cushioning the financial consequences of a layoff for a limited period of time. Social insurance is therefore rightly regarded as a productive force.
With 1.74 million vacancies, the chances of finding new employment are now better than they have been for a long time. Many people who became unemployed after the first corona shock in spring 2020 are now back in work. And many companies that laid off their employees back then are now desperately looking for staff. The 3.6 million employable recipients of unemployment benefit II (ALG II) are also a reservoir.
The ALG II, popularly frowned upon as “Hartz IV”, was introduced in 2005 as part of the “Agenda 2010 reforms”. In return, unemployment benefits for the long-term unemployed were abolished. The idea: The state is obliged to ensure that nobody slips below the social subsistence level.
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Anyone who, despite intensive efforts, cannot find a job, has no assets or other sources of income or has no dependent family members in view of the five million unemployed at the time, receives basic security from the state, which also reimburses a reasonable rent.
However, anyone who receives this welfare benefit is obliged to help to overcome their need for help – specifically: to meet interview deadlines, to retrain or qualify, to apply for jobs and to accept reasonable employment.
Benefit cuts threaten those who repeatedly violate these requirements. According to the Federal Employment Agency, such sanctions were never an issue for more than 95 percent of benefit recipients because they behaved in accordance with the rules. At the beginning of this year, no more than 1.6 percent of employable ALG II recipients were subject to sanctions. Were!
Because last Thursday, the Bundestag, with the votes of the SPD, Greens and FDP, decided that the long-term unemployed would also receive full basic security if they did not try to find regular employment. Since the asset check has already been suspended with the Corona aid measures until further notice, if the sanctions are lifted, the Hartz IV benefits will come close to an unconditional basic income for people without a legal income.
The idea of such a basic income is not new and has already been propagated by numerous philosophers and utopians of classical antiquity and modern times. Even today, this idea has numerous prominent supporters. What is remarkable is how contradictory the expectations are that the protagonists expect from it.
In addition to protecting human dignity, even in times of hardened mass unemployment, the most common arguments are streamlining and increasing the efficiency of the welfare state, a redistribution from rich to poor or people’s right to self-realization.
It is undoubtedly true that digitization and the desired decarbonization of the economy are likely to result in many jobs being lost. However, it is also true that technical progress and structural change have mostly not led to persistent mass unemployment in the past.
Permanent real growth is not in sight
On the contrary, new and well-paid jobs were constantly being created. The belief that a guaranteed basic income can allay people’s concerns about technological change is based on the assumption that it is possible to guarantee every inhabitant a reasonably comfortable standard of living without there being an obligation to work for it.
Today, the German economy is facing major challenges. Stuck between inflation, war, energy shortages, decarbonization and supply bottlenecks, there is no real growth in sight. Added to this are the massive aging waves that will soon set in, which will continue to depress potential growth. A return to the conditions of the past decade is not in sight.
>>> Also read: How Hartz IV rules have developed since 2005
At that time, in the upswing after the financial crisis, the economic powerhouse in the EU attracted many skilled workers from other member states to Germany. As a result, the resident population grew by almost three million between 2011 and 2020, which further boosted the economy. The upswing caused the profits of many companies to rise sharply, while at the same time the state’s tax and contribution income rose sharply.
At the latest, the corona pandemic slowed down this euphoria. First, production came to a standstill in many places, then the supply chains collapsed and there was no immigration. Soon not only preliminary products but also workers became scarce. Today there are more vacancies than ever before, also because many companies are hoarding qualified staff despite fears of stagflation.
One of the most important tasks of economic and social policy should therefore be to motivate as many people as possible to take up gainful employment and to provide incentives for those who have been working part-time to extend their gainful employment. All efforts in this direction would be thwarted with any form of an unconditional basic income. And that also applies to the agreed form of Hartz IV benefits.
To be sure, the 2005 reform was by no means perfect. Since the ALG II is a combination wage model, the first cardinal error was the lack of a statutory minimum wage. This defect was corrected in 2014 without any relevant job losses.
According to the coalition agreement, the federal government wants to tackle the second cardinal error, the very high transfer withdrawal rates, i.e. a burden with state taxes of the order of 80 or even 100 percent for additional earnings. That will be difficult enough because such a reform will probably not be possible without losers and at the same time affordable. Hollowing out the system beforehand does not make reform any easier. Because any leeway to compensate for the losers of such a reform is prematurely given up.
More: Why an unconditional basic income is priceless