Over €10 billion spent on unproven or ineffective labour market policies in Germany

Werner Eichhorst, Klaus F. Zimmermann, 23 April 2007

Only four instruments have led to positive results in the form of increased integration into the labour market - (i) placement vouchers; (ii) training programmes; (iii) wage subsidies; and (iv) business start-up grants. This translates to only around 28%, or €4.2 billion, of the total expenditure on active labour market policies.

The growing unemployment rate in Germany has led to a large number of instrumental regulations that have complicated, rather than simplified, employment policy. As well as aiming to curtail the uncontrolled growth of labour market policy schemes, the Hartz reforms introduced over the past few years have also allowed for a thorough evaluation of the existing schemes, many of which are poorly designed and implemented and, as a result, ineffectual.

The authors of CEPR DP6246 look at the structural changes and improvements to labour market policy in Germany over the past five years and review the evaluations of the policy. They find that only four instruments have led to positive results in the form of increased integration into the labour market - (i) placement vouchers; (ii) training programmes; (iii) wage subsidies; and (iv) business start-up grants. This translates to only around 28%, or €4.2 billion, of the total expenditure on active labour market policies.

Job creation schemes and temporary employment agencies for the unemployed have had a negative impact on re-entry into employment, and a formidable amount of money is still being spent on measures that have yet to be evaluated.

The authors conclude by recommending a streamlining of policy instruments to focus on those that are proven to be effective, and also recommend additional evaluation of instruments that have so far not been analysed, in particular programmes for disadvantaged youth and the disabled.

CEPR DP6246 And Then There Were Four... How Many (and Which) Measures of Active Labour Market Policy Do We Still Need?

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URL: www.cepr.org/DP6246
Topics: Labour markets
Tags: Germany, labour market policy, unemployment