Security in Labour Markets - Term Paper Example

?Germany: Flexibility and Security in Labour Market Introduction According to a generalized concept, social and economic policies are inversely related as more of one leads to the less of another. But if these two can be linked in a complementary way, then the welfare can be maximized (Auer, 2007). It has been pointed out by economists that the flexibility of labour market can improve performance of the labour markets. Flexibility in the labour market measures the degree up to which the employment and/or labour input adjustment (measured in terms of working hours) or labour cost adjustments (measured in terms of wages) can align to changes in the economic policy (Cazes and Nesporova, 2003). Social security represents the employment security and social security. The purpose of this paper is to understand the concept of “flexicurity”. This concept relates to a positive relationship between the two aspects of labour market security and flexibility (Sauert, 2009). However, there are opposing views regarding the concept of flexicurity as well. According to authors like, Stanford and Vosco, increasing flexibility in labour markets is synonymous to decreasing flexibility (Rodgers, 2012). The aim of this paper is to study the context of labour market security and flexibility in Germany and the impact of it on the workforce, especially young workers. This paper also analyses the scenario of wage stagnation and mini jobs in Germany, owing to the labour market conditions. Flexibility and Security of Labour markets: Germany One of the key challenges of the member countries in the European Union is to strike the perfect balance between the flexibility and security of the labour market. The main action of policy makers in this regard has been to pass on the responsibility to the social partners. The underlying assumption in this case is that a well-balanced social dialogue leads to a well-balanced social market (Wilthagen, n.d.). The countries of the European Union, including Germany, has faced an increase in the demand of flexibility in order to boost the competitive performance of companies on one hand and on the other hand, there has been an increase in the incidence of social exclusion, segmentation, modern poverty and a troubled social integration (Wilthagen, Tros and Lieshout, 2003). In particular regard to Germany, the academic literature is more of a divided nature. One section of the academic fraternity believes that the labour flexibility in the German markets must increase as a precursor to reduce the high level of unemployment in the country. However, the emphasis of the government has been more on increasing the income and job security (Wilthagen, Tros and Lieshout, 2003). Regarding the flexibility status, Germany maintains a vision of internal numerical flexibility. Flexibility of working hours and reduction of overtime continues to be one of the most important policy considerations for the future. Over the recent years, the German Labour market has undergone a great degree of transformation, after suffering great levels of unemployment, both structural and long-term, for decades. The level of difficulty was higher for the unemployed workers as they found it difficult to enter the labour market. Since 2000, the introduction of reforms in the labour markets had widely changed the employment structure in the German labour market. Germany had mainly structured its policy around flexicurity, which aimed at less generous benefit system and lower level of protection against dismissal. The flexicurity model employed by Germany mainly relied on developing a well-built social security system, which structured the labour market policies in a way that would employ the people without jobs. The successful reform package of Germany can be traced to the introduction of reforms by Hartz in between 2002-2005 (Federal Republic of Germany, 2004) and Agenda 2010. The key feature has been to employ the job seekers and enhance the flexibility of labour markets. The main recommendations of the Hartz commission have been tabulated in the following figure: Figure 1: Chief Recommendations of Hartz's Reforms (Source: Tompson and Price, 2009) The passing of reforms of “Agenda 10” were introduced in 2003, under the Schoroder government, which had also contributed significantly towards job creation. The key elements of this were: Figure 2: Key Points of Agenda 10 (Source: Dullien, 2013) It was believed that the liberalization of the working hours would improve the capacity of the labour markets. The success of private sectors was also attributable to the recovery of labour markets. Germany followed a policy that had made the standard labour contracts more flexible. This policy had helped Germany in a lot of ways to fight the critical times faced during the European Debt Crisis (Konrad Adenauer Stiftung, 2013). The strategy employed by Germany has not been completely flawless. It is seen that the people who are engaged in the mini-jobs or temporary jobs (as they could not be permanently employed) had thin chances of being employed on a permanent basis. They also had very less chances of promotion. Another challenge that has been faced by Germany is the changing demographic scenario and its impacts on the labour market policy. The shrinking working population has raised the importance of younger people in the working force. The reforms have been successful in raising the level of employment for older people, but the impact on the younger population has not been equally buoyant. Impact on the young workforce Most of the European countries have been actively involved in the implementation of employment programmes for the youth of the country. Germany has ranked top among countries of the European Union, in terms of expenditure spending (1.7 billion euro from 1999-2002) on the Active Labour Market Participation (ALMP) of the youth (Caliendo, Kunn and Schmidl, 2011). From 2002-2010, nearly 1.4 million youth were added to the youth work force (Caliendo, Kunn and Schmidl, 2011). In the recent year, statistics have revealed that the probability of unemployment is higher among the low-educated youth compared to the youth with medium-level of education. Research has revealed that wage subsidies of longer duration works equally well for both low and medium educated youth. This implies that the wage subsidies become the first step towards stable employment entry by the youth. In Germany, the young-adults have higher unemployment compared to teenagers (Caroleo and Pastore, n.d.). Even after the introduction of Hartz Reforms, the impact on youth unemployment of Germany has not been significantly different from the unemployment pattern in adults. The level of unemployment among the youth was very high prior to the reform period. This value had begun to fall since 2005 (Raisanen, et al., 2012). The increase in the unemployment of youth started to fall with the overall reduction in the level of employment. One of the explanations for this is the system of education that is followed in Germany. The education system is more apprenticeship-type vocational-oriented, which helps the youth to have a better shot at employment. The Hartz reform did not have any special consideration for the youth of the society. It was seen as a part of the overall problem and hence, did not receive any special consideration (EEAG, 2013). In order for the country to progress, it is extremely important for the country to concentrate on investments in the education of the young to produce a well-qualified workforce. There has been a notion which asserts early retirement of the existing workforce to make way for the younger population to fit in their shoes. However, research work has revealed that early retirement is very costly in Germany and that there is a very strong correlation of the employment of older population with the younger one (Supan and Schnabel, 2010). Mini jobs and Wage stagnation Mini jobs refer to the low wage employment contracts of employment for lesser number of hours worked (Tresor-Economy, 2013). The rise in the employment levels of Germany, in the recent times, can be largely attributed to the growth in the number of mini-jobs which focused on the employment of the population, which has long been unemployed. This was the key strategy of German reforms. The other side of the success story of Germany is the negative effects of mini-jobs that have been created by the reforms in the current reform period. The mini-jobs, since their inception, have met with major criticism like: Mini-jobbers are excluded from the long-term employment benefits like, pension schemes. They act as a low-wage trap with very little chances of the employed to navigate to permanent employment. These labourers are paid lower wages compared to the industry standards, even in the case of low skilled employment. Some critics have pointed out that these jobs have been one of the major reasons which had aggravated the Euro zone crisis. The stagnation of real wages, since 1990s, has been largely attributed to the surge in mini-jobs. It has been estimated that between 2004 and 2011 the real wage in Germany has fallen by 2.9% (Blankenburg, 2012). The mini-jobs are also seen as the primary factor that has driven up the rate of inequality in Germany compared to the other countries of European Union. Undeniably, the German economy has been experiencing record growth levels, even after the financial crisis. Yet the level of wages stagnated abruptly in the country (Wisman, 2008). Even during the reform period, the real wages fell by 4.5% during 2000-2009 (Deutsche Well, 2013). As far as labour productivity is concerned, there has been an increasing level of labour productivity without a proportionate rise in the wages of the labour and this raises the question of exploitation from the critics (International Labour Organization, 2013). Conclusion This study has concentrated on the relation between flexibility and security in the labour market, in the context of Germany. It is observed that the labour market reforms in Germany has largely been defined by the concept of flexicurity, which tries to establish a positive relationship between the degree of flexibility of labour market and level of security achieved. The lesson from Germany has shown that there has been a positive impact on the level of unemployment by the reforms introduced in the labour market. The rise in the number of contractual jobs, compared to permanent labour contracts (greater flexibility), has raised the capacity of the job markets and reduced the unemployment. The focus on the younger workforce has implied that the reforms had an overall impact of lowering the level of youth unemployment since 2005. However, there has been no separate approach to reduce youth unemployment. The last section has dealt with the negative impacts of mini-jobs. It has been observed that the rise in mini-jobs has largely stagnated real wages in Germany and acts as a low wage trap for the German economy. Reference List Auer, P. 2007. Security in labour markets: Combining flexibility with security for decent work. [pdf] International Labour Organization. Available at: [Accessed 3 January 2014]. Blankenburg, S., 2012. 'Mini-jobs' don't work in Germany, and they won't work in Britain. [online] Available at: [Accessed 3 January 2014]. Caliendo, M., Kunn, S. and Schmidl, R., 2011. Fighting Youth Unemployment: The Effects of Active Labor Market Policies. [pdf] IZA. Available at: [Accessed 3 January 2014]. Caroleo, F. E. and Pastore, F., n.d. The Youth Participation in the Labour Market in Germany, Spain and Sweden. [pdf] n.p. Available at: [Accessed 3 January 2014]. Cazes, S. and Nesporova, A., 2003. Labour markets in transition: Balancing flexibility & security in central and Eastern Europe. Geneva: International Labour Organization. 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