Forum newsletter: The Economics of Bürgergeld – ReLive of the Short Cut with Enzo Weber and OECD Expert Anne Lauringson

Dear friends, colleagues,

For weeks now, Germans have been stoically told that “reforms” are coming, a fall of reforms; “inevitable,” as the Chancellor says. And that there somehow have to be “many.” But what does that actually mean? And which of the major problems of our time would, say, cutting benefits in the Bürgergeld system really solve? This is often where the debate drifts into the esoteric. Of course, it is unfair if people refuse to take up work and still receive benefits. But how many are there? And how many jobs would really be created by cutting Bürgergeld?

In our New Economy Short Cut² this week, we tried to look beyond the confusing talk show slogans to see what modern research says – with Enzo Weber, a leading German labor market expert, and with Anne Lauringson from the OECD. The bottom line: Anyone who really wants to bring large numbers of long-term unemployed back into work will not get far by cutting benefits. Because most affected people are in some form of difficult life situation – either due to health problems or because social circumstances make taking up work nearly impossible. They will not take jobs, no matter how severe the cuts.

This applies to Germany as well as OECD-wide, Lauringson noted. The danger of threatening cuts is that people withdraw completely, leaving the welfare system, as Weber explained: “Then they are also gone from job placement, from training, from support and from counseling.” On top of that, cuts have their downsides – people under pressure accept jobs below their qualifications. That is neither economically useful nor good for the country, since these people are then missing where more skilled workers are needed in the long run.

According to the research, the solution lies exactly here: To overcome these obstacles, it has proven more effective to provide people with individualized support, Lauringson said – and, if necessary, first improve the social environment, for example by ensuring childcare for single parents, or by relearning social skills lost after long-term unemployment. Only then can people enter training – and eventually take a job.

Not a solution for sloganeers or for those appealing to envy reflexes, of course. But otherwise, we should not be surprised if after such mirage reforms the problems remain. “We need to turn the debate on its head,” Weber said – and “pull all the levers.” This can include adjustments to Bürgergeld. But it also requires much more. In the end, Weber argued, in times of positive sentiment and a growing economy, far more jobs would be created almost automatically than by applying more and more pressure on Bürgergeld recipients.

Perhaps, to generate such positive dynamics, it is actually not so helpful to tell Germans every day that now there must be lots of painful reforms – and that it all necessarily has to hurt. Without any proof that it will actually achieve much. German maso-economics.

Anyone who wants to rewatch the entire Short Cut², held in cooperation with the OECD, can find the ReLive here – including the presentations.

Have a nice weekend,

Thomas Fricke

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