It was August 16 2002, a warm summer day, when Peter Hartz entered the stage in the French Dome of Central Berlin, where his performance had been meticulously planned; to say: ” Today is a good day for the unemployed in Germany”. His enthusiasm was shared by many politicians and experts at the time. Hartz gave his name to the biggest reforms in the German labour market since World War Two. To this day, the benefits paid to long-time unemployed is commonly known as “Hartz IV”.
But today, the legacy of Peter Hartz and the sweeping reforms introduced by chancellor Gerhard Schröder (Social Democrat Party SPD) – the “Agenda 2010 ” – is at the center of a controversial debate that continues to divide experts, politicians and activists. Its supporters have aggressively advertised the agenda as a model for other countries while its critics called the reform a historical mistake.
Peter Hartz, Messiah of German business
In September 2002, after Schröder and his centre-left coalition of Social Democrats and Greens was re-elected, the German economy reached rock bottom. The New Economy bubble burst, the unemployment rate was 11.3 percent and more than 4.7 million Germans were unemployed.
The government had to act. In March 2003, Schröder gave a speech to the German parliament laying out a path that abandoned everything that social democracy had traditionally fought for. He declared: ” We will cut state services and benefits, support individual responsibility and demand more effort from every single person.” Schröder asked Peter Hartz, who was chief human resources officer for the automobile company Volkswagen at the time, to design the reforms. Hartz became the reform overlord, the Messiah of the German economy – or so it was seen by most at the time. The fact that the benefit paid to long-term unemployed is now often called Hartz IV, most likely fills him with pride.
Stigmatising the lower class
The Agenda’s core element is reforms to the German labour market. They mainly consist of eroding the German social security system, including drastic cuts to benefits paid to long-term unemployed. The idea was clear: if you lose your job, you had better find a new one fast, or your living standard will soon slump. Schröder had already set the tone for the debate about unemployment in a 2001 speech: “There is no right to be lazy”. The stereotype of the workshy, lazy jobless was born. Today, the term “Hartz IV” is widely used to stigmatise the lower class. Reality TV shows depict people on Hartz IV benefits, eating unhealthy, uneducated, sitting on the couch all day, often screaming at their children, living in messy homes.
Hartz IV became a horror to all working-age Germans. It allowed employers to force down wages. People looking for work now found it almost impossible to turn down job offers with bad conditions since if they didn’t accept them, they had to face the shame and deprivation that was Hartz IV. As the coalition failed to introduce a minimum wage (a disgraceful mistake only corrected ten years later), there was no limit to employers’ wage-dumping.
The sanction machine
The Hartz laws also introduced a new, controversial tool for job centres: sanctions. From now on, the authorities could cut people’s benefits as a penalty for “offenses” such as failing to show up at a job interview or missing a jobcentre appointment. This has a drastic impact. The amount of Hartz IV is calculated to guarantee a basic subsistence level. If cuts are made, it effectively means that people are forced to live below subsistence level by the state. The penalties are especially harsh for under-25-year-olds. One missed appointment, and all benefit payments except housing and health insurance are capped. Even those two services will be frozen in case of a second offense for three months. In a parliamentary hearing on June 2015, experts warned that tough sanctions might lead to the unemployed becoming homeless and force them to commit crimes to make a living. One million sanctions were handed out by jobcentres in 2014 and 20,000 young people are currently ‘lost’ – out of reach for jobcentres. Meanwhile, increasingly many sanctions are being withdrawn by courts: in 2014, they ruled that sanctions were illegal in more than 50,000 cases.
The birth of wage-dumping
Additionally, Agenda 2010 included watering down employees’ protection against unfair dismissal and deregulation of temporary employment. The explosion in the number of people employed in the low-wage sector or precarious, temporary jobs in the past decade is therefore often blamed on the Agenda reforms. According to some statistics, the percentage of low-wage work in all jobs went up from 14 to 21.5% in the last few years. Germany now has the biggest low-wage industry in Western Europe. Due to Agenda 2010, the labour leasing industry boomed: in-labour leasing, private agencies “lend” workers to companies. The “workforce broker” agency makes huge profits, while the company can pay the leased workers less than its own employees and thereby reduce its wage bill. The losers in this game are the leased workers: according to one study, 75% of full-time leasing workers earn a salary below the low-wage threshold. Thanks to Agenda 2010, the number of workers in labour leasing contracts almost tripled between 2003 and 2012.
The reforms also created a new mass phenomenon in Germany: the working poor. More and more people work full-time for wages that are still not enough to make a living. As of now, almost 1.5 million Germans in work are dependent on additional benefits to make ends meet.
Pensions and healthcare under attack
Outside of the labour market, Agenda 2010 includes reductions to pensions. The effects of those regulations are not extremely negative, given the good economic situation in Germany which has filled retirement funds. However, labour market reforms are forcing many people to retire at later times. And in a recent court ruling, jobcentres were given the right to force long-term unemployed people into early retirement if the authorities consider them unlikely to find work again. This power is problematic because going into early retirement as a Hartz IV recipient means automatically receiving a lower pension. One charity estimates that until next year, this mechanism will cost 140,000 people around 10 percent of their pension.
In the health sector, Agenda 2010 sought to reduce health insurance costs by increasing individual’s contributions. Some services, such as in-vitro fertilisation, were not covered by insurance anymore. Additionally, the principle of shared costs between employer and employee was abandoned for some expensive areas. All in all, however, the reforms only helped little in slowing down the massive increase in healthcare costs.
A debated success
The Agenda 2010 supporters faced massive criticism in the first years of the reforms. Unions criticised it for allegedly dismantling the social safety net and leading to low wages and poverty.
Then came the 2008 financial crisis, and the reforms’ supporters saw an opportunity to exonerate ‘their’ Agenda. It is a fact that the German economy performed extremely well when the global economy crashed. The Agenda creators have argued that Germany’s success is due to their reforms – which they characterised as ‘harsh but necessary’.
Without a doubt, there are some success stories about the Agenda reforms. In April 2015, the unemployment rate in Germany was 4.7 percent – less than half of what it was in 2002. However, one must not only ask ‘ How many people are employed?’ but also consider ‘Under what conditions are those people employed?’. Sadly, the answer is that the Agenda 2010 has led to a significant increase in the number of people in insecure, temporary and low-paid jobs.
The argument that the reforms helped the economy get through the crisis easily is too simplistic. Germany’s economic success story is based on multiple, complex factors, and not only a set of laws passed in 2003. A 2013 study by the economic think-tank DIW concluded that the scientific evidence for the Agenda’s effectiveness is ‘incomplete and inconsistent’.
Rich country, poor people
Despite the Agenda’s popularity and its many prominent supporters, which include former French president Nicolas Sarkozy and the head of the US company General Electric, a critical look is worthwhile. The reforms’ effects on the economy may be debated among experts, but the impact on society is clear: the stereotypes about allegedly lazy jobless people has increased. Hartz IV became a stigma, a social shame. Joblessness became more embarrassing, with people on benefits being forced to constantly justify why they had trouble finding work. The reforms have furthered class divide in our country. In May, the Organisation for Economic Cooperation and Development (OECD) reported that the income gap has widened in Germany since the 2000s. According to recent data, 2.1 million German children under 15 years of age live below the official poverty line – which is one in five children. In addition, around 200,000 German children live in families that cannot afford appropriate warm clothing for all family members.
Germany may be a rich country overall, but we must not neglect the fact that poverty remains a problem.
A problem that was unfortunately worsened by the much-celebrated Agenda 2010. The United Nations Committee on Economic, Social and Cultural Rights also concluded in a 2011 report – in which Germany’s social policies were harshly criticised – that Hartz IV failed to secure a fair living standard.
No, Mister Hartz, it was not a good day for Germany’s unemployed.