Path Shifting and Path Dependence: Labor Market Policy Reforms Under German Federalism

Abstract

Previously a laggard in labor market policy reforms, Germany has combined a fundamental change of its benefit system with a reorganization of its employment services since 2005. The reform has resulted in a hitherto unresolved constitutional dispute that calls the “joined-up” governance of employment and municipal welfare services into question. The article endeavors to explain this outcome and the reform's uncertain destiny in terms of a dynamic version of path dependence theory.

Keywords:

• welfare regime
• welfare culture
• bismarckianism social protection
• path dependence
• governance
• federalism

Notes

¹For concepts of employment orders see Heidenreich, 2004 and Pries, 2005. For implications of the reform with regard to the German employment order see Knuth, 2006.

²To some degree, mega-unemployment in Germany is an institutional delusion because people are counted as unemployed who would have a different status of social protection in countries with apparently more successful labor market policies. These differences are not sufficiently leveled out in internationally comparable unemployment measures like the European labor force survey since the status reported by people in a survey will be strongly influenced by the status officially assigned to them—cf. Erlinghagen & Knuth, 2008.

³See Dyson, 2006 for details and theoretical reflection on the use of commissions in policy making.

⁴Beware of misleading language: As a body of public law under tripartite governance, the FAW is far from what would be a government agency in public management terms. Like the respective bodies responsible for the other branches of German social insurance, the federal state steers mainly by legislation. Steering by objectives is just developing as part of the reform process, and it is difficult to run the FAW like an “agent” because, under corporative governance, it has several principals.

⁵For evaluation of this reform element see Bender, Bieber, Hielscher, Marschall, Ochs, & Vaut, 2006; Hielscher & Ochs, 2008.

⁶For evaluation of instruments see Bundesministerium für Arbeit und Soziales, 2006; Eichhorst & Zimmermann, 2007.

⁷Benefits are exempt from taxation; this is why replacements rates refer to standardized net income.

⁸During the 1980s, longer durations of up to 32 months for older people with long contribution records were introduced as means of pre-retirement. These have been reduced to 18 months as part of the reform—and again increased to 24 months under the conservative-led Grand Coalition which succeeded the Schröder government.

¹⁰These definitions are taken from the legal regulations for disability pensions: The medical criteria for disqualifying from receiving a disability pension have been transformed into criteria for defining the target group of labor market oriented activation.

⁹Whereas unemployment benefit II is the technical—and misleading—term for the benefit for adults able to work, the acronym BIS (basic income support for jobseekers—the official title of the relevant legislation) will be used when referring to this regime of social protection as a whole.

¹¹ Barbier (2008) terms this “political culture” and stresses its national and linguistic embeddedness.

¹²This principle dates back to the representation of the territories established in 1666 at Regensburg (immerwährender Reichstag — cf. Lehmbruch, 1997).

¹³“Except as otherwise provided or permitted by this Basic Law, the exercise of state powers and the discharge of state functions is a matter for the Länder.” (art. 30, Basic Law for the Federal Republic of Germany). The historical reason for this is that in Germany the “bureaucratic state” in Max Weber's terms emerged at the level of the territories before a nation state came into existence (cf. Lehmbruch, 1997).

¹⁴This is facilitated by the fact that the timing and periodicities of federal and of Länder elections are independent of each other.

¹⁵In order to let the municipalities enjoy the alleviation from costs that had been promised to them, the Federal Government shares roughly one third of the housing and heating costs. The assessment and distribution of this federal refund to the municipalities—inevitably via the treasuries of the Länder—is an issue of continuous quarrel.

¹⁶Sixty-Nine is the number of delegates of the Länder in the Bundesrat, which reflects the relative weight of the Länder in the German population. Therefore, the number of 69 appeared to offer an a priori solution for the allotment of options to the Länder.

¹⁷For results see Bundesregierung, 2008.

¹⁸Almost all large cities are being served by consortia, which explains why the latter are even more predominant in terms of customers than in terms of territorial units.

¹⁹In July 2008, there were more than 5 times more working-age claimants in BIS than in unemployment insurance.