Topic: Economics
A German Solution to Rampant Unemployment Generous unemployment benefits have helped raise Germany's Unemployment Ranks to 12.6% straining the government's budget. Those unemployment checks are no longer free.by World
(libertarian)
Monday, February 18, 2008
In 2005, unemployment in Germany reached highs of 12.6% of the population. In a nation with generous welfare benefits, 67% prior salary for at least 12 months (longer if you are above 45) - sponsored by a 6.5% tax on all wage earners, the system became unsustainable. With over 5 million unemployed, receiving not only a paycheck, but full health care coverage, the hurdle to re-entering the workforce was high. An individual had to find a job that payed full benefits with at least 70% of your former salary - and those were scarce to find.
As an incentive to push people back into the workforce, a work plan was established. The premise was that low paying jobs and those without benefits were being unfilled due to the generous benefits of the unemployment system. A work program was intitiated such that in order to receive full state benefits, you had to take a low paying civil service job (1-3 euros an hour which supplemented full benefits) cleaning and maintaining schools, nursing homes, roads, and museums among other jobs. If you declined to work the 20-30 hours a week required by the program, you lost 30% of your benefit check.
The results of this program? Unemployment in 2008 has continued to drop to less than 4 million Germans, 8.1% of the population. I imagine the infrastructure of the country has benefited as well.
Is a similar system a tenable option in America? Our unemployment hovers at around 5% - a level which economists tell us is "acceptable". I would argue that 1/20 unemployed creates inefficiencies in a system, but have realized that unemployment is mostly a reflection of the level of benefits provided to those currently without work. If you lower the benefits, more relatively low paying / low benefit jobs become attractive. The question is where to draw the line. Clearly Germany had drawn that line too high, creating a financial disincentive to return to the workforce, eventually threatening to take down the economic stability of Europe's largest economy.
Will creating a cheap state labor force out of the ranks of the unemployed provide politicians incentive to keep the benefits high to ensure they don't lose their newfound labor pool? Only time will tell...I for one will be watching.
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