Much of the discussion since the publication of Sapir's report has been on the question of how features of the more successful economies - namely the Nordic ones - could be made to work for those lagging behind. In particular, the systems of Germany and France, which used to be the motor of the EU economy, have come under scrutiny.
In Sapir's presentation, France and Germany are in the 'continental' sector. Both countries' social systems are characterised by a relatively high degree of employment protection: enterprises argue this makes it tough for them to hire people whom they would then have difficulties firing again.
Average tenure in years with the same employer
|
Denmark |
Germany |
France |
|||
|---|---|---|---|---|---|
|
1992 |
2000 |
1992 |
2000 |
1992 |
2000 |
|
8.8 |
8.3 |
10.6 |
10.4 |
10.3 |
11.2 |
Source: http://www.socsci.auc.dk/carma/carma-1.pdf
In France, Prime Minister Dominique de Villepin’s attempt at introducing ‘flexicurity’ into work contracts aimed at youth under the age of 26, is facing furious opposition from student organisations, trade unions and the Socialist party. Called ‘Contrat Première Embauche’ (CPE), the new work contract tries to draw on the Danish ‘flexicurity’ model by allowing companies to hire young people and keep them on a trial period for two years. On the security aspect, the CPE gives young people a right to claim unemployment benefits after 4 months spent on the job instead of the currently complex system where benefits are paid on the basis of 6 worked months out of 22.
The CPE was presented by de Villepin as offering pragmatic responses to the problem of continued high youth unemployment. Unveiling the new measure on 16 January, he pointed to a jobless rate of almost 23% for the under 25s compared with a 9.6% rate for the overall population. And education, he added, is no longer a guarantee against precarious work conditions. "When they finish their studies, [young graduates] take from eight to eleven years to find a stable job. In the rest of Europe, it is half as much," de Villepin pointed out.
In Germany, the popularity of the so-called grand coalition government led by Angela Merkel rests at least partly on the fact that the most unpopular labour market reform measures had already been introduced by the previous government, led by Gerhard Schröder. It may well be argued that the reforms, in particular the 'Hartz IV' reforms cost Schröder his office, resulting in an unprecedented election success for Germany's left wing.
The key measure of the 'Hartz IV' reforms was to bring together long-term unemployment benefits and social security benefits under a new 'Arbeitslosengeld II' ('Unemployment Benefits II') scheme, leaving both at approximately the lower level claimants received prior to the reform (up to 345 euros per month plus cost of "adequate" housing). For the first year, the unemployed receive benefit of 60 to 67% of their last net salary (1½ years for unemployed people 55 years old and over); then they enter into the Arbeitslosengeld II scheme.
Unemployed people who have savings or taken out life insurance are not eligible for Arbeitslosengeld II until that money is used up. They are also not entitled to payments if they have close relatives who could provide for their living. In contrast to the former scheme, unemployed people can also be forced to take any job, irrespective of whether it provides subsistance and whether the job is suited to the unemployed person's professional skills and qualifications.
With the reforms, Germany has taken a big step away from a flexicurity-inspired model rather than towards it. The central idea behind the Danish model is to keep workers motivated by offering them benefits (up to 90% of their last income) that allow them to keep their standard of living even in times of unemployment and to use these times for promoting their professional skills. The new German model, in contrast, lowers the level of social protection and forces those unemployed people who have made provision for their old age in the form of life insurance or savings to give those up, leaving them at a minimum social welfare level when they reach retirement age.
In addition, Germany's relatively strict rules on protection from dismissal have hardly been touched. The result will be a continued reluctance on the part of employers to hire more workers than they are sure to be able to employ long-term. In particular small and medium-sized enterprises will feel the negative consequences of this policy. In the mid-term the number of people threatened by poverty in the retired population, which itself is growing, will lead to a decrease in consumption which will have further negative repercussions on the economy.
