From Hartz IV to citizen income: More transfers, fewer sanctions

You are reading an excerpt from the weekday newsletter “The Other View”, published today by René Höltschi, business correspondent for the NZZ in Berlin. Subscribe to the newsletter for free. Not resident in Germany? Benefit here.

Hartz IV becomes citizen money: On Wednesday, the German traffic light government Draft for a comprehensive reform of the basic security for jobseekers introduced in 2005 passed, which until now has been called unemployment benefit II, but is better known as Hartz IV. This name goes back to a commission headed by Peter Hartz, which presented proposals for labor market reforms in the noughties. They were implemented by the red-green federal government under Chancellor Gerhard Schröder.

Hartz IV as a success

The fact that the bill introduced by the Social Democratic Labor Minister Hubertus Heil also changes the name of the benefits illustrates how unhappy the SPD is with Schröder’s legacy. Many Germans associate the reforms of the time with social indifference. And they could be proud of it: in 2005, with an unemployment rate of 13 percent, Germany was considered the sick man in Europe. In 2019, before the Corona crisis, the rate was 5.5 percent, less than half as high – according to many economists not only, but also thanks to Schröder’s reforms.

Hartz IV serves to secure the livelihood of employable people (and their families) who cannot secure it themselves or not sufficiently. These are often the long-term unemployed whose entitlement to unemployment benefit I has expired. However, the unemployed whose unemployment benefit I is not sufficient are also entitled, for example. While the unemployment benefit I is financed from the contributions to the unemployment insurance, Hartz IV, like the future citizens’ benefit, is financed from taxpayers’ money.

Far too little – or already too much?

According to the plan, the reform must now be approved by parliament before it comes into force on January 1, 2023. There were heated debates in advance about three innovations in particular. Firstly, the “traffic light” wants to adapt the services more quickly to the expected price development. As a result, for example, the standard rate for a single adult as of January 1, 2023 will increase by EUR 53 or 12 percent to EUR 502 per month. In addition, the state will continue to bear the costs for housing and heating for recipients of citizenship income.

Various social organizations criticize this increase as far too low and, with reference to the high inflation, which hits the needy particularly hard, call for an increase to 650 euros per month. For the Central Association of German Crafts, on the other hand, the “traffic light” is too generous: Many wondered why they should work at 7 a.m. when those receiving citizen income received almost the same, its President Hans Peter Wollseifer put on record.

In fact, every economy has a problem when public transfers appear more attractive than low-wage work. However, in an earlier step, the federal government also increased the statutory minimum wage by 15 percent to 12 euros per hour as of October 1st. Although this puts a strain on the economy, it should at least keep the “distance” to the citizens’ income recipients.

Trust is good, but . . .

Further reform elements could have more serious consequences. Secondly, according to the draft, the sanctions that are currently temporarily suspended will be significantly reduced. It is true that the citizen’s income (but not the benefits for accommodation and heating) can be reduced by up to 30 percent if a recipient violates his or her duty to cooperate, for example rejecting a job offer. But in the future, the first six months should be considered a “trust period”, during which sanctions are possible at most if someone chronically ignores appointments with the job center.

As important as mutual trust is, reintegration into the labor market has been shown to become increasingly difficult the longer unemployment lasts. It should therefore be possible to ask for the assistance of the recipients of aid, especially at the beginning – especially at a time when there is a blatant shortage of skilled workers in sectors such as gastronomy.

Wealthy but needy

A third problematic innovation is waiting periods for housing and assets: In the first two years of receiving citizen benefit, the recipients do not have to touch assets of up to 60,000 euros (plus additional amounts for family members). During this time, all costs for the previous apartment will also be covered by the state, even if it is excessively expensive. The assets and suitability of the apartment should only be checked from the third year.

Normal earners, who pay their rent themselves and often only have little savings, might find it difficult to explain why they have to help finance such generosity through their taxes.

Other innovations make more sense and are hardly controversial, including better support for vocational training for recipients of citizenship income and the reduction of some bureaucracy. The same applies to the planned higher allowances for “additional earners” as well as for pupils, students and trainees from families in need who earn their own money. This means that they can keep more of the money they earn despite being entitled to citizen benefits, which makes taking up work more attractive.

Nevertheless, the citizen money for the employer president Rainer Dulger On balance, a “fatal milestone in terms of labor market policy”: “This does not build bridges into working life, but into the social transfer system.” Even if you don’t want to go that far: “Promote and demand”, the tried and tested leitmotif of the Hartz IV rules, is not abandoned with the reform. But the “traffic light” made up of Social Democrats, Greens and Liberals clearly shifts the emphasis towards funding.

You can contact the Berlin business correspondent René Höltschi Twitter follow.