Poor caught in welfare trap, OECD warns

The risk of poverty in Germany is “very high” because the long-term unemployed have little incentive to work, the OECD said Tuesday in a dramatic entry into the Hartz IV debate.

Poor caught in welfare trap, OECD warns
Photo: DPA

As the war of words over Hartz IV continued, Herwig Immervoll, senior economist at the Organisation for Economic Co-Operation and Development, told Tuesday’s edition of Frankfurter Rundschau that labour and welfare policies were stifling the motivation of the long-term unemployed to find work and creating a welfare trap.

“Since the mid-90s, Germany has pushed low-earning jobs too strongly,” Immervoll said. “The long-term unemployed still have a comparatively small financial incentive to accept a living-wage job.”

The government’s announcement on Sunday that it would lift the monthly payment for recipients of Hartz IV long-term unemployment benefits by just €5 has led to a storm of criticism, with opposition parties, unions and welfare advocates attacking the plan as unethical.

But the OECD said that low-paying jobs and the narrow gap in financial rewards between welfare and work were entrenching poverty, rather than low benefits.

By international standards, the risk of poverty in Germany was “very high,” Immervoll said.

Under the current system, people on Hartz IV lose a large chunk of their benefits when they make additional income through part-time or casual work. Immervoll said the government urgently needed to change this model, which meant the long-term unemployed had little incentive to accept work that pays a living wage because the rewards are not sufficiently higher than welfare payments to make the work worthwhile.

The government has set up a working group that will make recommendations in October for a new model to determine how additional earnings should affect welfare payments.

Chancellor Angela Merkel’s centre-right coalition government announced Sunday it was raising the monthly Hartz IV payment to adults who are unemployed long-term from €359 to €364. The change came in response to a Constitutional Court ruling in February that ordered the government to revise the way the benefit rates were calculated in a more transparent way.

On Tuesday, the battle over Hartz IV continued, with Foreign Minister, Deputy Chancellor and leader of the pro-business Free Democrats, Guido Westerwelle, defending the plan and urging the opposition parties not to block it in the upper house of the parliament, the Bundesrat.

“We need a fair balance between those who are dependent on help and those who actually make this help possible through their work and their taxes,” Westerwelle told daily Bild.

The centre-left opposition Social Democrats are vowing to examine the plan carefully to see whether it is constitutional.

The head of the Christian Democrats’ employers association, Karl-Josef Laumann, said he was certain that the new payment rates conformed to the constitution.

“I believe the calculations of the Federal Statistics Office,” he told the Frankfurter Rundschau.

When the Constitutional Court ordered the government to review Hartz IV, its concern was not with the size of the payments per se, rather with the way in which they were calculated. Payments must be transparently calculated based on need, the court said.

The Local/DAPD/dw

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