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Germany: Hartz IV Unconstitutional

by dvx Thu Feb 11th, 2010 at 04:33:28 AM EST

On Wednesday, I dropped the following item into the Salon:

Court rules German welfare law unconstitutional | Germany | Deutsche Welle | 10.02.2010

The Constitutional Court in Karlsruhe has ruled that a five-year-old social welfare program known as Hartz IV is unconstitutional.

The ruling means that the current benefits paid out to those who qualify, including child dependents, must be adjusted. At present, adults receive 359 euros ($495), and children, depending on their age, between 215 euros and 287 euros.

The court gave lawmakers until the end of 2010 to come up with new guidelines for Germany's 6.7 million Hartz IV recipients. About 1.7 million children under the age of 14 are among those affected.

The court's decision was well received by a number of politicians, including German family minister Kristina Koehler.

"With its verdict, the court has established clarity and at the same time has considered the actual experience of many families with children, who are dependent on Hartz IV," said Koehler in a press release. "It is important and right, since it guarantees that the needs of children in families dependent on state benefits are appropriately considered."

This is a big deal in a whole lot of ways.


But first, a note on usage, and a little history.

In casual speech, the term "Hartz IV" is used to refer to both the restructuring of public support programs that took effect in 2005 and the benefit paid to persons out of work for longer than one year (the latter is properly called "unemployment benefit II", or referred to by its initials "ALG II". In speaking of the support, I use the two terms interchangeably.

The history:

"Hartz IV" was the brainchild of Peter Hartz, the former HR director of VW who advised Gerhard Schröder on the reform of the German labor market (and was subsequently pleaded guilty of taking kickbacks while working for VW).

Briefly:

Hartz concept - Wikipedia, the free encyclopedia

The Hartz IV reform was voted in by the Bundestag on December 16, 2003 and by the Bundesrat on July 9, 2004; taking effect by January 1, 2005. This part of the reform brought together the former unemployment benefits for long term unemployed ('Arbeitslosenhilfe') and the welfare benefits ('Sozialhilfe'), leaving them both at approximately the lower level of the former 'Sozialhilfe'.

Regardless of whether that last bit is true (yesterday's ruling of the Constitutional Court would make that seem doubtful), one of the significant consequences of the restructuring is that it suddenly reclassified masses of able-bodied people who had previously received "Sozialhilfe" ("social aid", i.e. for persons deemed non-employable) as unemployed:

Hartz concept - Wikipedia, the free encyclopedia

By January 2005, the number of people who count as unemployed had risen by about 222,000 due to new statistics introduced with Hartz IV, and by about 300,000 because of seasonal factors (unemployment is much higher in the winter). This brought the total official figure to 5,037,000.

By itself of course this was no bad thing - fewer people were now swept under the rug in the official statistic. Also, the municipalities are responsible for Sozialhilfe, while the state unemployment fund administers unemployment. So this reclassification was welcome relief for the perennial losers in German public finance.

So it probably would not have been bad policy, except that the Social Democrats and Greens felt that they had to set the ALG II benefit at a level that is frankly punitive: adults receive just € 359, children an arbitrary fraction of the same. Also, the labor authorities reserve the right to arbitrarily call ALG II recipients into the office at any time  - supposedly to ensure that they can't do any off-the-books work.

Also, there have been reports of hunger among children in Hartz IV families.

Now if Hartz IV was perceived as just problem for just a few unfortunates, I doubt if this matter would receive quite so much public attention. However, unemployed persons fall into Hartz IV after just 12 months. Also, after 12 months individuals are required to consume any savings, life insurance or other cash-equivalent assets (except for a small exemption) before being eligible for support. So Hartz IV became a focus for the anxieties of those in precarious circumstances - a large group in the current climate.

So what exactly did the justices say?

First off, they explicitly declined to comment on the appropriateness of the current level, or any specific amount (which seems to have prompted some idiots to suggest cutting the support level.) Rather, they said that complained that the way the benefits are set is arbitrary:

Court rules German welfare law unconstitutional | Germany | Deutsche Welle | 10.02.2010

The Constitutional Court did not propose a methodology for recalculating the standard rates, but Hans-Juergen Papier, the president of Germany's Constitutional Court, said benefits must be based on "reliable figures" and "comprehensible calculations." Rough estimates are unconstitutional, Papier said.

So transparent calculations are required to ensure that the support recipients receive is adequate.

But not just to keep body and soul together. Recall this sentence in the item I posted at the top:

The court said that the rules were not transparent enough and did not ensure at least a "dignified minimum" income.

This is a direct reference to the Basic Law:

Basic Law for the Federal Republic of Germany (Grundgesetz, GG)

I. Basic Rights Article 1 [Human dignity]

(1) Human dignity shall be inviolable. To respect and protect it shall be the duty of all state authority.

(2) The German people therefore acknowledge inviolable and inalienable human rights as the basis of every community, of peace and of justice in the world.

(3) The following basic rights shall bind the legislature, the executive, and the judiciary as directly applicable law.

And the Court has formulated that requirement in this case as follows:

Hartz-IV-Urteil - Von wegen Pi mal Daumen - Wirtschaft - sueddeutsche.deHartz IV Verdict - Guesswork is not good enough
Das Gericht hat ein solches Grundrecht zum ersten Mal formuliert: "Es sichert jedem Hilfebedürftigen diejenigen materiellen Voraussetzungen zu, die für seine physische Existenz und für ein Mindestmaß an Teilhabe am gesellschaftlichen, kulturellen und politischen Leben unerlässlich sind."For the first time, the court formulated such a fundamental right: "It extends to each individual in need of assistance the material prerequisites essential for physical existence and a minimum level of participation in social, cultural and political life."

So making this happen is the task of parliament. And the Court gave them until the end of the year to revise this.

How they propose to do this is anyone's guess. There has been some talk of providing services in kind instead of cash to cover at least part of the difference (in Fail City, where I live, museums are open free one evening a month - that's culture right there). But there are all kinds of things that are considered normal - children's class trips, birthday parties, communions, Internet - that the state is obligated to come up with. Right in the middle of the worst budget squeeze since the introduction of the Deutschmark.

Interesting times.

Display:
I have a very high opinion of the German Constitutional Court. This is yet one more instance where they have done the right thing.

Is there any other country where the court has established a standard for "dignified" public support?

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt t gmail dotcom) on Wed Feb 10th, 2010 at 02:01:33 PM EST
So it probably would not have been bad policy, except that the Social Democrats and Greens felt that they had to set the ALG II benefit at a level that is frankly punitive

Aren't you generous :-) Methinks the whole point of the reform was to have an excuse to reduce overall social spending.

adults receive just € 359, children an arbitrary fraction of the same.

That about children is the main problem, in therms of unconstitutional rough estimates. The typical impoverished-by-Harz-IV examples I read of over the past years were parents.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Feb 10th, 2010 at 02:17:04 PM EST
I'd say the point was to put pressure on the wage level.
by generic on Wed Feb 10th, 2010 at 03:38:37 PM EST
[ Parent ]

Unit labour costs compared, 1995-2005. From a diary I wrote three years ago: Franco-German Trade Gap.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 10th, 2010 at 03:48:40 PM EST
[ Parent ]
Another one from Krugman:

by generic on Wed Feb 10th, 2010 at 04:17:57 PM EST
[ Parent ]
Harz-IV stated where that graph ends.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Feb 10th, 2010 at 04:18:29 PM EST
[ Parent ]
Yes. But it was part of the same movement to bring down German labour costs and make German goods ultra-competitive in the Eurozone.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 10th, 2010 at 04:22:45 PM EST
[ Parent ]
Hm. Could be, but the Minijob reform (Harz-II, 2003) did more for that.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Feb 10th, 2010 at 04:22:48 PM EST
[ Parent ]
Part of the movement, as I said. Creating insecurity for the unemployed is a well-tried way of pressuring those who have a job to accept tougher pay and productivity conditions.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 10th, 2010 at 04:34:20 PM EST
[ Parent ]
But fortunately there are Unions that will protect their member's jobs and fight back against the bosses!

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Wed Feb 10th, 2010 at 04:42:49 PM EST
[ Parent ]
Not even. There have been pay cuts in Germany, often union-agreed or brokered. Overall, real wages have declined:

From DIW (German Economic Institute) Weekly Report, October 2009 (pdf), "Real Wages in Germany: Numerous Years of Decline".

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Feb 11th, 2010 at 01:41:45 AM EST
[ Parent ]
Forgot to add the <snark> tag.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Thu Feb 11th, 2010 at 03:21:28 PM EST
[ Parent ]
Oh, I "heard" it. Just meant to say that the way the unions have valiantly fought to hold on to jobs for the employed is by accepting and even suggesting pay cuts.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 12th, 2010 at 03:56:37 AM EST
[ Parent ]
And the effect of the court ruling on putting up the wage level is already being discussed
Im deutschen Sozialrecht gibt es einen Grundsatz, der ziemlich einleuchtend klingt: Ein Mensch, der arbeitet, soll mehr Geld zur Verfügung haben als jemand, der nichts tut oder nichts tun kann, weil er arbeitslos ist. Ökonomen nennen dies das Lohnabstandsgebot. Sollte die Bundesregierung auf Grund des Urteils des Bundesverfassungsgerichts in Zukunft die Hartz-IV-Sätze erhöhen, wird dieses Gebot jedoch weiter untergraben. Die schwarz-gelbe Koalition hätte ein zusätzliches Problem. Und das zu lösen, dürfte sehr teuer kommen.
They say that somebody who works should make more money than someone who is unemployed. If the government is forced to raise unemployment payments, this will not be the case, and to solve this will be expensive.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Feb 10th, 2010 at 04:52:16 PM EST
[ Parent ]
Yes, we're probably going to be hearing a lot of this happy horseshit in the next 10 months.

Of course the Serious PeopleTM bemoaning this circumstance are going to try with all their might to avoid the obvious answer: the introduction of a general minimum wage in Germany.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt t gmail dotcom) on Wed Feb 10th, 2010 at 05:01:39 PM EST
[ Parent ]
Theorie vom fehlenden Arbeitsanreiz macht keinen Sinn

Ich stelle den Ökonomen des Weltwirtschaftsinstituts die Frage, wie es überhaupt im Rahmen IHRER eigenen Theorie dazu kommen kann, dass sich der Abstand zu den Erwerbseinkommen so stark verringert. Oder gar auf null fällt. Im Rahmen der neoklassischen Preistheorie bzw ihrer Argumentation müßte doch Folgendes gelten:

Wenn Hartz IV eine seriöse Alternative für einen nennenswerten Teil des Erwerbspublikums darstellt, dann gibt es niemanden, der eine Arbeitsstelle für weniger annehmen wird. Zumindest wenn er rational agiert, wie es die Neoklassik ja postuliert. Wenn mir Hartz IV im Monat 1000 Euro bringt, ein Vollzeit-Job aber nur 900 Euro, dann wäre ich ja tatsächlich schön bescheuert, dem Job nachzugehen.

by generic on Wed Feb 10th, 2010 at 05:06:56 PM EST
[ Parent ]
Yep. Weissgarnix is always worth a read.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt t gmail dotcom) on Wed Feb 10th, 2010 at 05:25:11 PM EST
[ Parent ]
Quick and dirty translation for the German-challenged, because it's an important point:

I would like to ask the economists at the Weltwirtschaftsinstitut how, according to their theories, it is even possible to diminish the gap between unemployment payments and salaries. Let alone to reduce it to zero. Within the framework of neoclassical price theory underpinning their arguments, the following must hold:

If Hartz IV were a serious alternative for any appreciable fraction of the working public, then nobody would work for less [than the Hartz IV benefits]. At least if he acts rationally, which is presumed by neoclassical theory. If Hartz IV pays € 1000 and a full-time job only € 900, then you would presumably soon give up the job.

Of course, the orthodox answer is that this is in fact what we will see: Salaries will rise, because the opportunity cost of labour will go up. However, under orthodox price theory, salaries always equal marginal productivity, this means that the workers whose marginal productivity is less than the new equilibrium price level will be laid off.

In the real world, the notion that remuneration always equals marginal productivity is, of course, not even wrong. For one thing, there is no guarantee that the marginal productivity of the factors of production will sum to the total productivity of the enterprise. For another thing, this conclusion presumes symmetric power relationships between employer and employee. (And it's based on a model of human decisionmaking that's completely off its medication...)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 10th, 2010 at 05:58:11 PM EST
[ Parent ]
Minimum wages as the obvious answer?
I disagree. Not the silver bullet IMHO.
I would opt for:
  • (Unconditional) basic income.
  • Fair distribution of work meaning lesser weekly working hours.

Ad astra, GA
by ga on Thu Feb 11th, 2010 at 09:28:19 AM EST
[ Parent ]
Actually, within the context of German day-to-day politics, a minimum wage is an obvious answer: something legislators could enact rapidly and with little legislative overhead if they felt that employment was not sufficiently attractive.

But no, it's not a silver bullet.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt t gmail dotcom) on Thu Feb 11th, 2010 at 09:46:33 AM EST
[ Parent ]
DoDo:
Methinks the whole point of the reform was to have an excuse to reduce overall social spending.

That sounds about right. Still, the I think purely administrative aspect made sense on its merits.

DoDo:

adults receive just € 359, children an arbitrary fraction of the same.

That about children is the main problem, in therms of unconstitutional rough estimates.

True. I must confess I ran out of time to go into that in detail.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt t gmail dotcom) on Wed Feb 10th, 2010 at 05:10:27 PM EST
[ Parent ]
Recently, the big bad wolf of German politics, and ET favourite, the hardline CDU PM of Hessen state Roland Koch earned his latest headlines with Harz IV. Back in January, in best US Republican bame-the-poor style, he suggested that here should be an obligation to work for Harz-IV receivers, as a deterrence. He got negative reactions from most quarters, including federal labour minister Ursula von der Leyen (a Merkel confidante), who told that a few black sheep among Harz-IV receivwers who don't want to work shouldn't be reason to punish them all. However, Koch continued with his rhetoric, and then threatened to block von der Leyen's administrative reform of the job centers treating Harz-IV receivers (which was mandated by another constitutional court ruling).

I haven't seen Koch's reaction to the current ruling yet, but am searching the news.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Feb 10th, 2010 at 02:31:32 PM EST
I find that the Hassian SPD says the ruling was a slap for Koch for his attacks on Harz-IV receivers, but Koch himself apparently didn't say anything.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Feb 10th, 2010 at 02:37:43 PM EST
[ Parent ]
Koch seems to be on the fringes of his own party on this...

About a year and a half ago I was having coffee with a (very minor) young local CDU functionary. At some point he started talking about the need to develop a "modern conservatism". This of course in the context of a major city with high proportions of

  • migrants
  • single-parent households
  • gays
  • persons dependent on subsidized housing
  • environmentalism and global climate change

Some CDU politicians, like von der Leyen, at least seem to recognize that these issues exist. The Kochs do not.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt t gmail dotcom) on Wed Feb 10th, 2010 at 05:20:44 PM EST
[ Parent ]
was subsequently pleaded guilty

Grammatically this is like he was suicided.

Did he plead guilty or was he found guilty?

En un viejo pas ineficiente, algo as como Espaa entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Feb 23rd, 2010 at 06:31:38 PM EST


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