How Germany's reformed benefits systems aims to tackle labour shortage

After the first stage of Bürgergeld replaced the longstanding Hartz IV unemployment benefits six months ago, further regulations will come into force this Sunday July 1st.

According to the government, these are not only intended to improve the lives of people on basic benefits - but above all to bring them back into the working world.

What has changed and what is still changing?

What prompted the German government to overhaul its unemployment benefits system in the first place?

When Hartz IV was introduced in 2005, Germany suffered from mass unemployment.

But nowadays, the labour market now needs every helping hand it can get - and this was the driving idea behind the Germany’s coalition government decision to write Bürgergeld into law last year. 

Getting long-term unemployed people back into the job market is seen as an important step in the fight against labour shortages. With Harz IV, many relied on a series of short-term jobs, never breaking free from the cycle of poverty and dependence on benefits, regardless of how much they were increased to match a higher cost of living. 

READ ALSO: Bürgergeld: What to know about Germany’s unemployment benefits shake up

What is the difference between the second and the first stage of Bürgergeld?

The first stage of Bürgergeld was mostly focused on upping the amount that unemployed people receive. The standard rates were raised by €53 to €502 per month for single people without children. Partnered people received €451, while those with children qualify for a higher amount depending on the ages of their offspring.  

The second stage is about benefits for integration into the labour market. 

"After 17 years, this is one of the biggest steps forward," Daniel Terzenbach, director of the Federal Employment Agency in Nuremberg, told DPA. He says it is about creating incentives for people to take up educational offers. For example, further training (Ausbildung) can also be paid for - even with bonuses for its successful completion. 

"Until now, it was often financially more attractive for a long-term unemployed person to take a one-euro job than a longer-term qualification," said Terzenbach.

So it's about sustainable qualification?

That is the goal. The Bürgergeld package of measures is intended, for example, to make short-term employment less attractive for unskilled workers. Instead, it aims to up their qualification level, and do so in a way that fits their life circumstances - for example with extended training periods for single parents and individualised coaching. 

Seventy percent of the 1.7 million unemployed people in Germany have no formal vocational qualification. A further 880,000 people are considered long-term unemployed, half of whom have been out of work for more than four years. 

When Hartz IV was introduced, the situation was completely different - at that time many well-qualified people had become unemployed and could no longer find a job. The labour market was the problem, not the qualification. Today it is the other way round. 

"You go much more to the roots of long-term unemployment with the citizen's income," says Terzenbach. The cause of unemployment should be tackled, not the symptom.

How much do the new measures cost to implement?

Some of the measures are extremely expensive. For example, employers can be reimbursed up to 100 percent of wage costs for a certain period of time if they hire the long-term unemployed and employ them on a long-term basis. The costs of this alone are estimated at more than €1 billion per year.

Proponents, however, are sure that the efforts will pay off in the long run. "You can't expect miracles now," said Terzenbach. "This is an investment that will pay off in several months or years."

What do critics say about the reform?

The Christian Democrats (CDU) and Bavarian CSU sister party in particular have repeatedly criticised Bürgergeld, in some cases vehemently. Bavarian Prime Minister Markus Söder (CSU), for example, repeatedly emphasised that the citizen's income would mean a departure from the balanced principle of both supporting people and pushing them into action.

Saxony's Prime Minister Michael Kretschmer (CDU) had declared that a Bürgergeld recipient might be better off than someone who earns €2,500 gross in his or her job. However, such calculations are highly controversial among experts. 

Social organisations, on the other hand, complain that the increase in the standard rates is not sufficient to cover the increased cost of living.