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Levon Ter-Ghazaryan is the author of THE GERMAN LABOR MARKET Reforms, current situation, future development, challenges.

Introduction Labour market conditions significantly affect the living standards and wellbeing of citizens of any country, since they not only define the material wellbeing but also distribute time between work and other spheres of life. It can be stated, that features of labour market in any country predetermine to a certain degree the quality of life of its population. The present work studies labour market of Germany. This work describes reforms implemented at the mentioned labour market in the first half of 2000s, as well as evaluates the current situation at the German labour market with consideration of long-term employment and unemployment. This work also highlights challenges and potential opportunities at the German labour market in connection with existing conditions at this market. The last chapter of this work accentuates future prospectives for development of the above-mentioned market. The main objective of the present work is to evaluate the selected aspects of the German market.

1.	The German labor market reforms (Hartz reforms) The Hartz Commission introduced the “Hartz Reforms” in 2002 based on propositions for decreasing unemployment and rearranging the federal employment agency. The reform by German commission is based on the global tendency of neo-liberal restructuring of the welfare state. Its instruments include activating productive potentials of recipients, adapting agency to the regional or local level as well as interchange of benefits and efforts, expressed in integration contracts. This new idea of the welfare state seems to substitute the old concept of granting payments to compensate social risks. The “Hartz reforms” were greatly controversial at the time of their implementation in the year 2003 by the head of Germany’s government, Chancellor Gerhard Schröder. They cut down unemployment benefits in order to stimulate people to look for working opportunities. The government as well created vouchers that gave receivers an option to choose job training providers. Further, federal and local employment agencies (bureaucratic public institutions) were changed into service providers. The above-mentioned measures improved efficiency and brought certain positive results. However, the government were not able to make institutional changes in the wage-setting process. The reason was an autonomous system of industrial relation in Germany that is different from the majority of other Western countries, thus wage negotiations process happens without the direct influence of government. In Germany, working conditions, such as labor wages and hours, are controlled by unions, work councils (organisations that represent workers at the firm level in negotiations) and employers’ associations. Collective wage bargaining happens at the industry and regional levels, thus between unions and employers’ associations – not at the company level. When a company identifies with the trade union, its employees get efficiently covered by the union contract. 2.	Current situation on the above-mentioned market (structure of long-term employment and unemployment) The German labour market faced a high level of long-term unemployment since the 1990s, which put pressure on the traditional welfare state. The German labor market is divided into two camps – one provides many permanent job offers for skilled workers, while another requires strict flexibility from less-skilled candidates. There are also two types of the German social security system – the insurance-based unemployment benefit I system (UB I) for the short-term unemployed, and tax-based unemployment benefit II (UB II) for other job seekers. These two systems were elaborated during the period from 2005 to 2010, which revealed a number of significant problems in long-term unemployment. The amount of UB I unemployed decreased from 1.43 million to 0.88 million, while the amount of unemployed UB II recipients only dropped from 2.73 million to 2.07 million. There are around 4,9 million people in Germany together with family members and children who rely on UB II. Even though the unemployment increased twice from 1975 to 2009, the number of unemployed people without occupational training increased three times. Analytical data exposed certain groups of people at the greatest risk of exclusion from the labor market, especially people with no occupational qualifications. German market remained fairly resilient since 2009 during the global financial crisis and the debt crisis mainly thanks to the implementation of labor market reforms (Hartz reforms 2003-2005), even though low wage growth and a high external demand had parts in bringing the unemployment rate down. The deregulation of the labor market made easier for small businesses to hire and fire by weakening restrictions on fixed-term contracts. Short term and long-term unemployed were induced into seeking jobs as the rules for part-time and temporary workers were more liberal. However, social security spending has exceeded the contributions from workers caused by an ageing population and a long-term unemployment. This rigid labor market, which led to a chronic unemployment problem, may be addressed by corporate restructuration and a growing capital are setting the foundation allowing Germany to meet long-term European economic integration and globalisation challenges. 3.	Challenges and possibilities of the German labor market One of the main challenges at the German labour market can be that the country lacks skilled engineers and that the country’s technical workforce decreases. In its 2010 report, the Cologne Institute for Economic Research indicated that German labor market will have a shortage of 200,000 engineers, scientists, and technicians by 2014. Further, the Federal Labor Agency’s research institute reported in 2010 that Germany will have a deficit of skilled workers in 2025 due to the declining population. The shortage of skilled workers would restrain the Germany’s competitive status because the country will not be able to maintain its high-tech industry without enough engineers. “A sizeable portion of Germany’s engineers is credentialed in the field of mechanical engineering, what is termed Maschinenbau. These engineers play a key role in steering massive annual investments into production technologies calculated to raise output per worker-hour in the interests of those owners striving for pecuniary gain through increasing shareholder value for their business enterprises.” The other significant challenge for the German labour market is growing right-wing extremism in the country. According to the 2011 report by the UN Committee on Economic, Social and Cultural Rights, Germany discriminated against immigrants. The report stated that immigrants face discrimination in the labour market, as well as in the health and social services. For example, in November 2011, Germany uncovered that a neo-Nazi cell was responsible for at least 10 cases of murders and attacks against migrants from Greece and Turkey. This case exposed the revival of right-wing extremism in the country. Another important challenges for the stability of the German labour market are the salary conditions in households, as well as wage levels of women. Fee health insurance for non-working spouses and tax advantages for single-earner couples are type of disincentives provided by the German government to dual-earner couples compared to single-earners. Although, it caused a high proportion of women in part-time jobs (20 hours or less), where 21% of female labor force are part-timers compared to the OECD average of around 10% in 2011. Women’s salaries are significantly lower than men’s in Germany. According to the OECD, the wage-gap between full-time male and female employees was 21.6% in 2009, making Germany trailed only by South Korea and Japan among the OECD regarding this problem. Moreover, this wage inequality affects particularly single mothers working in low-wages jobs. One of the main potential possibilities of the mentioned labour market is overall low level of unemployment, even during the crisis period. Thus, during the global financial crisis and instability of the world economy, German labour markets showed resilience. The unemployment rate in Germany only increased by 0.25% between 2008 and 2009, during the global financera crisis and debt crisis, and despite a decrease of Germany’s GDP by 5.1%. Since then, a post-reunification low of 5.3% in 2012 has been reached. The current situation of the labor market contrasting from late 1990s and early 2000s when German unemployment rate was around 10%. The declining hold of trade unions and their loss bargaining power, falling from 25.3% in 1999 to 18.5% in 2010, caused by lower unemployment benefits and deregulation rules for firing workers in lower-paid temporary jobs and project-driven contract work, has averted major strikes. Thus making the implementation of the mentioned Hartz reforms in the labor market possible. The objective of this reform to make the jobs market more flexible was a major factor for the turnaround of unemployment rate, although low wage growth and robust external demand played an important role. German economy strength, therefore, comes from the flexibility of the labor market. „Germany’s unemployment rate decreased from almost 11 percent in 2005 to 7.5 percent in 2008, mildly increased during the Great Recession, and then continued its downward trend reaching 5.5 percent at the end of 2012.” Further significant potential opportunity for the development of German labor market is attracting foreign highly-qualified specialists. The shortage of high-skilled technical workers in Germany have made the German foreign ministry to set up a pilot scheme « Make it in Germany » in three Asian countries, India, Indonesia and Vietnam in order to attract, and help them integrate into German society, skilled professionals such as medics, mathematicians, it specialist, natural scientists and technicians. The government expects to integrate between 400,000 and 800,000 high-skilled immigrant workers by 2025. 4.	Future development of the labor market in Germany (future prospects and future risks) Germany gains the most advantages of the European single market, the Eastern enlargement and the Eurozone, German companies will tend to improve domestic capital investment in order to increase productivity despite the lack of labor and disadvantageous demographics. A decline from the currently around 81 millions and a small peak of 82 millions in 2020, to 68-73 millions inhabitants by 2060 shown by the latest official projections (April 2015) and based on average annual immigration of either 100,000 or 200,000 from 2022 onward shows that, in spite of greatly accelerated refugee inflow since mid-2015, these projections are considerably too low. By 2047, it is expected an increase in the labor participation rate, as a result of past labor-market and pension reforms, rising from 69% in 2016 to about 81%. These reforms will be supported by political efforts, in order to raise the effective retirement age and boost productivity, mainly among older workers. Thus preventing worsening pressures on social security finances and on work incentives of the working-age population. Thus, despite the shrinking population, Germany can expect growth of productive population, mainly due to pension reforms. However, it is important to take into account that growth of productive population has its limitations, since it will be difficult to replace people that will retire later in life with young workers due to low birth rates in Germany. The above suggestion exposes the need to take measures that would stimulate birth rates and regulate immigration to Germany. Important risk of the German market is the growing shortage of technical specialists. It can be stated, that educating new technical specialists should take place in the conditions of shrinking population, thus with consideration of prolonging working age. Possible solution for the above-mentioned risk can be attracting foreign technical specialists, increasing popularity of technical jobs among the young people of Germany, as well as partial retraining of specialists that have qualification adjacent to technical professions. Already elaborated and mentioned programs for attracting foreign technical specialists can significantly increase the number of technical specialists in the country. Growing discontent with the immigration policy in the country by certain parts of population is complicated political, economic, social and cultural phenomenon, which variously affects labour market. The key solution for the above-mentioned risk is well thought-out policy of the German government. Immigration policy of Germany must be based on both interests of migrants and population of the country. It is possible to consider interests of all sides at the labour market through legislative measures – for example, to introduce quotas for migrants in certain spheres in order to protect employment of local population, to stimulate retraining of migrants, to promote integration among immigrants at the expense of their equal distribution on the territory of the country, and to encourage improvement of qualification of working citizens. Significant part of immigration policy of Germany can be regarded utilisation of strong sides of the labour market for integration of foreigners, that can decrease anti-immigrant mood in the society. Relatively low unemployment can become a factor of improvement of living standards for immigrants and improve their integration into German society. The existing insurance and tax challenges for German families, in which both spouses are employed, on the one hand negatively affect family’s income, but on the other hand allow to take care of children (as a rule by women). In this question it is important to find compromise between social roles (again, generally women), in order to have stable and highly paid job even while partially employed. Efficient instrument for this problem can be fixed labour contracts and wage, considering that many women not only work but also take care of children.

Conclusion After analyzing actual state and future prospectives of the German labour market it can be concluded that the mentioned market, despite having certain weaknesses and challenges, has strong potential for successful development. Successful development includes low level of unemployment (firstly long-term), high level of employment, relatively high wages of all categories of citizens, stability of employment and labor conditions that would satisfy both employers and employees. The main challenges for the labor market of Germany are the following: decreasing productive population without conducting pension reforms, negative attitude of part of German population to immigrants and foreigners, lack of technical specialists and less beneficial situation of women as well as families where both spouses work. It is important to note, that German government and its labour market are capable of dealing with all above-mentioned challenges, since they have the necessary instruments (political, economic and legislative). Important factor is also the fact, that all the abovementioned challenges are mainly inside challenges, thus the chances of their solving are higher. Probably the most complex chellenge for the labour market are the increased anti-immigrant moods, which expose not only the need of better integration of immigrants, but also improvement of labour conditions for the majority of population, so that it does not feel as it suffers from immigration policy of the country. Thus, the labour market can play a significant role in improvement of population’s attitude towards immigrants through overal improvement of economic wellbeing of German citizens. Another important challenges for German labour market can be mutually compensated – for example, increased employment of women full-time can increase the number of employed population, or, for example, successful immigration policy can decrease the lack of technical specialists. Among all the mentioned challenges, 3 challenges – negative attitude towards immigrants, labour conditions for women and families with both working spouses – deal with the majority of population, thus their solution can be a strong catalyst for improvement of situation at the German labour market.

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