Dr. Silke Bothfeld Labour Market Institutions in GERMANY: Current Status and ongoing Reforms Paper prepared for the conference “The Social State in Armenia”, organised in cooperation of the DAAD and the CRRC Yerewan, th February 2006 in Tsahkazdor/Armenia Dr. Silke Bothfeld Economic and Social Research Institute Hans-Böckler-Foundation, Düsseldorf

Dr. Silke Bothfeld Structure I. Introduction II. Three main areas of labour market regulation including ongoing reforms 1. Labour Law 2. Collective Bargaining 3. Active & Passive Labour Market Policies III. Summary 1.Driving forces 2.Unsolved questions

Dr. Silke Bothfeld I. Introduction Problem High and rising unemployment despite good economic performance Question How to characterise and how to explain recent labour market reforms? Hypothesis The German institutional model becomes more heterogenous and show tendencies of erosion but does not follow to a unitary model

Dr. Silke Bothfeld I. Standardised Unemployment Rates

Dr. Silke Bothfeld II. Three areas of labour market institutions – basic principles Labour Law Relative high social protection & democratic participation on company level Collective bargaining Centralised wage-setting system as guarantee for sustainable development of wages Labour Market Policy Maintenance and support of high quality labour supply

Dr. Silke Bothfeld II. Labour Law: Contradictory changes Dismissal protection: Deregulation Working-time Regulation: Mixed perspective Co-Determination: Enhancement of employees participation Sick pay: Symbolic battle Parental leave: Fundamental adjustments

Dr. Silke Bothfeld II. Labour Law: Coverage by works councils

Dr. Silke Bothfeld II. Labour Law: Effects on Gender relations

Dr. Silke Bothfeld II. Collective bargaining: Core element of labour market regulation

Dr. Silke Bothfeld II. Collective bargaining: Coverage by collective agreements

Dr. Silke Bothfeld II. Collective Bargaining: Tendencies of Erosion? „Controlled decentralisation“ of collective bargaining by use of opening clauses Decrease in trade union membership: From 11,8 in 1991 to 6,8 Million members 2005; membership rate of 20% in 2005 Increase in share of low-wage-earners and increasing wage dispersion

Dr. Silke Bothfeld II. Labour Market Policy: The Activation Strategy Economic rationale: To increase effectiveness of expenditure (budget containment) Avoid „poverty trap“ (eliminate negative incentives for transitions into paid employment) Political rationale To avoid „free-riding“ behaviour and misuse of social benefits Public responsibility for the provision of more effective instruments for re-integration into paid employment  Assumption about causes for unemployment (individual/ structural)  Assumption about economic and social behaviour of citizens

Dr. Silke Bothfeld II. Active Labour Market Policy: Policy Mix Further Training and Qualification cuts in expenditure for training measures & reorganisation of training sector  increasing mismatch? Promotion of non-standard forms of employment deregulation of mini-jobs, promotion of self-employment and development of marginal social employment  substitution of standard employment & pressure on wage bargaining Enhancement of consultancy and placement systematic institutionalisation of private placement agencies & Re-organisation intensification of placement service for l.t.u.e.  quicker re-integration into paid employment?

Dr. Silke Bothfeld II. Unemployment Insurance: Paradigmatic change Stronger obligations for recipients - early registration; stricter criteria for employments that unemployed must accept  Increasing pressure on unemployed to take up employment Cuts in benefits reduction of benefit duration for unemployment benefit; for l.t.u.e. wage replacement benefit is reduced to flat-rate benefit  Partly dramatic decrease in life standard for l.t.u.e. Merger of system of unemployment & social assistance integration of former social assistance recipients into labour promotion measures; stricter account of household income & assets; sticter obligation to accept marginal employments  Increase in perception of social insecurity & increasing pressure to take up any employment

Dr. Silke Bothfeld III. Summary: Different speed of change in the three areas & its driving forces

Dr. Silke Bothfeld III. Outlook: Remaining questions What will the regular employment status be like? Adjusted standard, maintenances of present regular employment standard or no standard at all? What level of social security do we need? Basic provision, maintenance of principles of equivalence and solidarity, or generous universal benefits? How can social standards be defined and social policy programmes be formulated in future? Scientific based & technocratic (closed-shop) commissions, „old“ neo-corporatist decision making or new forms of social participation & democracy