Page 576 - The Principle of Economics

590 PART NINE THE REAL ECONOMY IN THE LONG RUN
IN THE NEWS
German Unemployment
MANY EUROPEAN COUNTRIES HAVE UN- employment insurance that is far more generous than that offered to U.S. workers, and some economists believe that these programs explain the high European unemployment rates. The following article discusses the recent debate over unemployment insurance in Germany.
For Germany, Benefits Are Also a Burden
BY ELIZABETH NEUFFER BERLIN—They grumble and grouse as they wait for their benefit checks at a local unemployment office here—about the lack of jobs, about the stupidity of German politicians, about how outra- geously high taxes are.
What today’s unemployed Germans don’t complain about is this: the size of their benefit checks.
“I get unemployment benefits, I make some money working on the black market, I make a living,” says Michael Steinbach, a 30-year-old electrician who sports a well-ironed shirt, fashionable glasses, and a briefcase as he waits his turn at the Prenzlauer Berg unemploy- ment office. “For now, it’s comfortable.”
Germany’s social welfare system takes good care of the jobless, with ini- tial average monthly checks of nearly $900 per month for someone married—
and the prospect, for those who know how to work the system, of remaining on benefits for life. So blatantly do people abuse this system that Chancellor Hel- mut Kohl once critically described his country as “Leisurepark Germany.” . . .
Now—partly because . . . such gen- erous benefits are seriously straining the nation’s economy—questions are being raised about whether one way to combat unemployment is to reform the social welfare system itself. . . .
Combating unemployment, always a hot topic here, leapt back into public de- bate last week, after the German Labor office released figures showing that job- lessness inched up to 11.7 percent in September, the fifth consecutive post- war record. . . .
The unease here also stems from memories of when Germany last faced such levels of joblessness: 1933, when the unemployed were so desperate they begged in the streets for spare change, relied on soup kitchens for meals, and ushered the Nazis into power.
Postwar Germany’s reaction was to create a massive welfare state, designed to squelch social unrest through social benevolence. “It’s more important to have modestly happy people on benefits than poverty and all its side effects such as a high crime rate as in the United States,” said Heiner Geissler, a leading figure in the ruling CDU party.
It is becoming increasingly clear, though, that preserving benefits has trapped Germany in something of a vi- cious circle.
The nation’s high-cost social welfare system is one reason its labor costs are among the highest in the world: Both employees and employers must pay generously into the system, so they need higher wages and profits. More than half of a worker’s paycheck goes to
taxes. Employer/employee-funded taxes this year alone totaled 52.8 billion deutsche marks, or nearly $30 billion.
But high labor costs are a major reason companies are now fleeing for cheaper, neighboring Poland—meaning job losses for Germany. At the same time, unemployment benefits have be- come something of a velvet coffin for the unemployed, discouraging them from taking jobs. Until recently, workers who worked part-time were effectively penal- ized, as they would receive less unem- ployment benefits if they were laid off.
And generous unemployment bene- fits mean there is no incentive to take part-time or low-paid work—a strategy adopted to fight unemployment in other countries, including the United States. . . .
These benefits are so good that ex- ploiting them is something of a national sport. In a recent, and not uncommon, conversation overheard in a Berlin cafe, a woman bragged about how she was using her Sozialhilfe to pay for a vacation in Italy. Some Germans even register in several districts, knowing it’s unlikely they will be caught for receiving multiple benefits.
Not surprisingly, more than 60 per- cent of Germany’s unemployed are long- term unemployed.
“People are used to, and heavily rely on, ‘Father State,’ ” said Dieter Hundt, president of the Confederation of Germany Employers’ Association. “We are a bit spoiled by a too tightly woven social net, which doesn’t encourage the individual enough to improve his own situation.”
SOURCE: The Boston Globe, October 12, 1997, p. F1.