Germany’s Labour Market Policies

Germany has become one of the most competitive economies in the world. Only a decade and a half ago it was widely derided as stagnant, and ridden by political paralysis in reforming its labour market policies. However, in 2002, the discovery of manipulated statistics in the German Employment Agency opened a window of opportunity to break the stalemate in corporatist policymaking. In response, the government convened a commission to design labour market policy reforms: the Hartz Committee, named for its chair, Peter Hartz. Including experts, politicians, and members from interest groups in the commission enabled the government to promote the ‘Hartz Reforms’ on the basis of expertise and compromise. Their focus was on creating incentives for seeking employment. Job search assistance and monitoring gained importance, whereas ineffective job creation and early retirement schemes were abolished or reduced. These activating reforms successfully tackled structural unemployment and increased the overall employment rate. Their success in strengthening economic resilience was demonstrated during the 2008 economic crisis, when in combination with other measures such as the extension of short-time work, and controlled unit labour costs, they led Germany’s labour market through the deep recession.