The German Social Welfare System

Euro 200: France, Germany and Modern Europe Introduction The social welfare system of a state … is a key factor for the economy. shapes the social structure. prevents poverty. Euro 200: France, Germany and Modern Europe

Euro 200: France, Germany and Modern Europe Introduction Role of Social Policy in the EU Concepts to describe different welfare states Historic development of the German welfare system and its basic characteristics Situation of today Euro 200: France, Germany and Modern Europe

Euro 200: France, Germany and Modern Europe The EU – Social Agenda Lisbon Agenda 2000 / Review 2005: Focus on Growth and Jobs 20 million jobs, 70% employment rate by 2010 Social Agenda: European labour market enable workers to take pension and social security entitlements with them support the Member States in reforming pensions and health care Euro 200: France, Germany and Modern Europe

The EU - The Charter of Fundamental Rights (2000) Article 33 Family and professional life […] To reconcile family and professional life, everyone shall have the right to protection from dismissal for a reason connected with maternity and the right to paid maternity leave and to parental leave following the birth or adoption of a child. Euro 200: France, Germany and Modern Europe

The EU - The Charter of Fundamental Rights (2000) Article 34 Social security and social assistance The Union recognises and respects the entitlement to social security benefits and social services providing protection in cases such as maternity, illness, industrial accidents, dependency or old age, and in the case of loss of employment, in accordance with the rules laid down by Community law and national laws and practices. Euro 200: France, Germany and Modern Europe

Describing Welfare States Three Types of Welfare States Liberal Social-democratic Conservative (Esping-Andersen (1990): The Three Worlds of Welfare Capitalism) Euro 200: France, Germany and Modern Europe

Liberal Welfare States Market-based social security schemes Private schemes Means-testing Limited benefits “[…] a blend of a relative equality of poverty among state-welfare recipients, market differentiated welfare among the majorities.” (Esping-Andersen, p.27) Examples: USA, UK Euro 200: France, Germany and Modern Europe

Social-democratic Welfare States Universalism and equality Redistribution of wealth High benefits State organized childcare Encourage women to work Examples: Scandinavian countries Euro 200: France, Germany and Modern Europe

Conservative Welfare States Maintain the differences between social classes No redistribution of wealth Traditional role models are protected Example: Germany Euro 200: France, Germany and Modern Europe

German Social Welfare System Unemployment insurance Health care insurance Pension insurance Long-term care insurance Social assistance Euro 200: France, Germany and Modern Europe

Bismarck Area and Weimar Republic 1883 Workers’ health insurance 1884 Industrial accident insurance 1889 Invalidity and old-age insurance 1911 Reich insurance system extended to civil servants / white-collar workers 1927 Unemployment insurance Characteristics: Contribution financed, not tax financed, no pay-as-you-go Contributions shared: 50% paid by employer, 50% by employee Widely supported by middle class Euro 200: France, Germany and Modern Europe

Euro 200: France, Germany and Modern Europe Post war Germany Konrad Adenauer (1949-1963 ), CDU Ludwig Erhardt (1963 – 1966), CDU The Social market economy (Alfred Müller Armack) “A system which allowed business and finance to operate under the conditions of free market trading yet which worked within the legislative framework of industrial democracy at plant, company and industry level and within a statutory social security scheme seemed to enjoy the best of both worlds.” (Nigel Reeves, 1995, 213) Euro 200: France, Germany and Modern Europe

The Social Market Economy Die soziale Marktwirtschaft Free market trading The industrial harmony Laws of Codetermination Mitbestimmungsgesetz 1951 Betriebsverfassungsgesetz 1952 Monetary policy of the Bundesbank (Federal Bank of Germany) Extensive social security scheme Euro 200: France, Germany and Modern Europe

Post War Germany - The Economic Miracle 1957 Pension reform (Rentenreformgesetz) Pay-as-you-go principle Pension adjustments linked to gross wages Characteristics of the welfare system: Based on traditional role models: Women as mothers and carers, male breadwinner, “family wage” / splitting of income full-employment, standard employments Core aim: securing the achieved standard of living of families Euro 200: France, Germany and Modern Europe

Euro 200: France, Germany and Modern Europe Growth of the government sector from the 60s to mid 70s Grand Coalition (1966-1969), SPD and FDP (1969–1982) 1966 / 67 Recession: government investment programme (7.5 billion DM) 1967 Stability Law (Law for the Promotion of Economic Stability and Growth) Public sector grew about 1.3 million employees between 1960-1973 (~60%) 1968 Average unemployment benefit: 68% of prior net wage 1972 Pension reform law: age of entitlement 63 Euro 200: France, Germany and Modern Europe

The Social Expenditure Rate Sozialleistungsquote Source: Wewer, G. (1998), Bilanz der Ära Kohl, p. 348, Statistisches Bundesamt

Rolling back the welfare state in the 80s Rolling back the welfare state in the 80s? Helmut Kohl (1982 – 1998), CDU 1992 Pension reform: pension adjustments linked to the net wage, age of entitlement 65 1992 Social expenditure rate: ~70% in the former GDR 1995 Long-term / nursery care insurance, pay-as-you-go (Pflegeversicherung)

 The Safety Net Social security Insurance-based Wage-related benefits Pension Unemployment Health care Long-term / nursery care Insurance-based Wage-related benefits Financed by contributions “Conservative” Social assistance Alleviation of the poor Means-tested Fixed levels of benefits Tax financed “Liberal” 

Social Assistance Rate Social assistance rate: claimants of social assistance not living in care institutions / population Before 1991: former FRG Source: Stastisches Bundesamt (2003) Sozialhilfe in Deutschland, http://www.destatis.de/presse/deutsch/pk/2003/sozialhilfe_2003i.pdf

The Situation of today – Reforms Gerhard Schröder (1998-2005), SPD „In an ageing society it is fair to expect people to take more responsibility for themselves, especially concerning health care and pensions. It is fair not to cripple citizens‘ willingnes to work by excessive non-labour costs“ (Agenda 2010,p.4) 2002: Gesetz zur Reform der Rentenversicherung („Riester“-pension): Promotion of capital-covered private pensions, Times of child-raising taken into account no adjustments of pensions in 2004 2004: Reform of Health Care: quarterly fee of 10 €

“Harz”-Laws Hartz I (2001): Hartz II (2003): Hartz III (2004): Personnel Service Agencies Job-AQTIV Laws Hartz II (2003): Jobcenters “Ich-AGs” / “Me-plcs”: support for one-person start-ups Hartz III (2004): Restructuring and renaming of the Bundesanstalt für Arbeit (= Bundesagentur für Arbeit, Federal employment agency) Hartz IV (2005): Means-tested Unemployment Benefit II

The Social-insurance Scheme Pension Unemployment Health Long-term care Contrib. 19.5 % 6.5% ~14.3% 1.7% Unemployment benefit Unemployment assistance (Unemployment benefit (II) 2005) Compulsory if wage < 3.862,50 € / month When > 65 years after 12 months of contributions, for 12 months after 12 months of unemployment, all jobless persons able to work How much? ~70 % of final net pay ~67 % of final net pay (one child), for 12 months 53% of final net wage (345 € West / 331 € East, plus rent) everybody gets the same Level I: 345 € Level III: 1.432 € wage-related (fixed level, means-tested) “principle of solidarity” care at home promoted