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September 22, 2019
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The Reason and the Effect of the Hartz IV reforms

The SPD promised its voters a comprehensive welfare state reform. “We will leave Hartz IV behind us,” says party leader Andrea Nahles. It is unlikely that the Social Democrats will start with the additional earnings limits for Hartz IV reforms recipients. And yet there is great potential for getting people back to work – without exploding the costs of the welfare state. However, there are more than what meets the eye.

  • This is shown by model calculations of the MunichIfo Institute for the liberal Friedrich Naumann Foundation. The currently applicable law set false incentives for anyone who wanted to work out of the need for help, said the Deputy Chairman of the FDP parliamentary group, Michael Theurer, on Monday at the presentation of the results in Berlin.
  • Currently, Hartz IV recipients are allowed to keep a maximum of 20 cents on every additional euro they have earned, beyond a 100 Euro tax credit. Therefore, the incentive is low to take a job, criticized Theurer. Since the unemployment benefit II, the child allowance and the housing allowance are not coordinated, could earn more income for some families in the end even less income, said the labor market spokesman for the FDP Group, Johannes Vogel. This is “grotesquely demotivating”.

The Ifo researchers Andreas Peichl and Maximilian Blömer therefore show different ways in their report on how the current disincentives can be overcome. Their focus is on how Hartz IV recipients find not only a marginal employment, but a job subject to social insurance contributions. Social insurance-free mini-jobs and micro-jobs up to 100 euros in earnings are therefore less favored in the reform models than in the current law.

For their calculations, the Ifo researchers summarize the social benefits paid so far by different providers: unemployment benefit II, costs for housing, housing allowance and child allowance in a single transfer benefit. They then examine how the costs of taxpayers and employment are evolving for step-by-step added-value rules.

Employers start their own welfare state commission

If, however, the expected positive employment effects and thus higher income for the social funds are taken into account, the bottom line is an increase of nearly 3.8 billion euros, researchers Peichl predicted. Although one could not completely avoid that individual households would be made worse than in today’s system, otherwise the whole thing would be very expensive.

Overall, however, the efficiency of the system can be increased without major negative distribution effects. For all ten models, positive employment effects are to be expected, with short-term additional costs of a maximum of 400 million euros per year. He was therefore confident that his reflections would meet with “positive response” in politics, emphasizes Peichl.

The Ifo expert launches open doors with the Liberals. The FDP wants to get inspiration from the study for its own liberal citizen’s money, for which it is currently developing a comprehensive concept. Here, too, it is about bundling different social benefits and eliminating undesirable developments in the interaction of different social security institutions. This time is really complicated.

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