German labour market reform. Hartz and minds

A new and controversial law takes effect this weekend

TRY calling a German bureaucrat after 3pm and the chances are that you will get no answer. But the Berlin branch of the Federal Employment Agency has recently been open as late as 10pm, weekends included. A dozen employees, surrounded by brown folders, are busy typing data into computers. “We have no choice but to get this done by the end of the year,” says one. The scene is replicated in 180 job-centres across Germany: thousands of staff are working extra shifts to prepare the launch on January 1st of “Hartz IV”. This law, based on the work of a commission led by Peter Hartz, Volkswagen's personnel director, is Germany's most important labour-market reform since the war.

The law's underlying concept, “sanction and support”, has worked in other countries. It cuts benefits for those not willing to work, but should help others to find jobs more quickly. Yet no chief executive of, say, a large bank, would do things in quite this way: bringing in a new financial product that relies on unproven technology, and at the same time merging with a shoal of smaller firms.

The long-term unemployed have been taken care of by two branches of the welfare state. If you never worked, your city paid means-tested welfare. If you had a job for long enough, the Federal Employment Agency paid unemployment aid for life, at a rate just over half of previous net income. But this gave little incentive to look for legal work. So the government is merging the two benefits into a single, means-tested benefit for all long-term unemployed. Monthly payments for a single household in western Germany will be €345 ($470); in the east they will be €331. In both cases, recipients get almost as much again in rent and heating allowances.

What sounds straightforward in theory is complicated in practice. For a start, details of the Hartz reforms have kept changing. To counter protests, the government was making final adjustments as late as September. That left only a few months to prepare for the launch of the new system.

Meanwhile, job-centres and municipal welfare offices did not know enough about their clients to determine eligibility under the new rules. They have sent out 16-page questionnaires to some 3.8m long-term unemployed and welfare recipients, asking for information about everything from the income of other family members and personal savings to health insurance and special dietary needs.

Data-gathering on such a scale is quite a feat, but the calculation of benefits is even harder. Coding German social-security law is a programmer's nightmare. It proved possible to meet such a tight deadline only because Prosoz, a German software firm, had already developed the core of the application. New software technologies were used to produce a service accessible via the internet. For the first time, Germany will have a near-complete database of its less fortunate, making it easier to evaluate training and to detect fraud.

The biggest challenge is to merge parts of the job-centres with the welfare offices. In most places, they will jointly administer the new benefit and help clients find work. But the two bureaucracies have different cultures: one is hierarchical and has focused on paying benefits, while the other sees its main task as social caretaking and has a reputation for independence.

So far, the whole operation has gone surprisingly smoothly. With a week to go before the deadline, 94% of the questionnaires sent out had come back, and benefit statements for 2.2m households had been issued. The computer system, after crashing repeatedly in October and proving unable to deal with complex cases, is more stable. Better still, the threat of not getting the new benefit has prompted many unemployed to look harder for work.

Yet much could still go wrong. Many of those who have had benefit statements claim that the calculations are wrong. Some fear that protests against Hartz could revive, or even turn violent. And it remains to be seen if the software will make the correct payments. Pessimists expect a technical disaster comparable to Germany's ill-fated road-toll system for lorries. Worse, unemployment may go up before it goes down, because welfare recipients who can work will now be classed as unemployed.

The stakes are high. If Hartz IV succeeds, Germany will have taken a big step towards helping its army of long-term unemployed off the dole and into work. If it fails, there will be pressure to break up the Federal Employment Agency, or privatise it. And the popularity of Chancellor Gerhard Schroder's government, which has risen, could plummet. That may be why Mr Schroder has said that, if anything goes wrong, it will be the fault of Wolfgang Clement, his economics minister.

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