Questioning the welfare state

High unemployment is forcing Germany to consider moving the jobless off the dole and into temp work.

Michael Jeske never figured he would be called a "slaveowner" or "people trafficker."

But as the chief executive of a temporary job agency in western Germany, Mr. Jeske was derided with such names, even as his nonprofit company put thousands of unemployed back to work. Ingrained attitudes worked against his concept in Europe's largest economy, where jobs for life or almost unlimited unemployment benefits are taken for granted.

Yet today, faced with the largest percentage of long-term jobless in Europe, temporary workers may be part of the solution to high unemployment, both government and labor leaders agree.

"For the first time, the question of temporary work is being accepted – even by trade unions – and this consensus represents a breakthrough that could lead to reform," says Manfred Weiss, a professor of labor law at Goethe University in Frankfurt. "We could see a weakening of the welfare state, but perhaps a necessary one. The question is, how far are we willing to go?"

In this election season, a government commission is proposing the deregulation of the temping business and establishment of a link between temporary agencies and each of the the country's 181 unemployment offices. Another proposal, seen by many as radical, would establish penalties – smaller checks for instance – for those who didn't accept available jobs after a certain period.

If passed into law, say economists, the plans – created by a group of labor leaders, academics, and trade-union representatives, headed by Volkswagen personnel chief Peter Hartz – would represent one of the boldest reforms of the German labor market in decades.

"The generosity of the unemployment benefit system is a major part of the German welfare state," says Gert Wagner, a labor-market expert at Berlin University of Technology. "In a way it's more important to change the culture of unemployment than the amount of money the jobless get each month."

With unemployment climbing to 9.7 percent and the numbers getting grimmer almost by the day, the need to introduce more flexibility into the German labor market has become the central theme in the September elections for chancellor. Scandals surrounding Germany's labor department, accused of grossly inflating its job-placement records, led Chancellor Gerhard Schröder – himself accused of failing to deliver on his promise to slash joblessness – to demand reform measures.

With a staff of 90,000, the unemployment department is Germany's largest bureaucracy. The reform commission estimates hundreds of thousands of unemployed could return to work if the department were to concentrate on job placement rather than managing unemployment checks.

Melina Dayal's story shows how that can be done. At Start, Jeske's company, she got a two-hour interview on the spot and, within a week landed an assignment as a consumer-service representative. Eventually, her assignment turned into a full-time job. "I've been lucky," she says. "The risk you take when you become unemployed is that you quickly get bogged down into the unemployment mentality, and it's hard to get out."

Zhfer Soenmez, in contrast, was an integral part of the unemployment system for almost three years, ever since his longtime employer shut down a branch office. In his 50s, he recalls encountering some resistance to his age when considered for potential jobs.

But Start offered him a job moving cargo at the airport. He hopped from assignment to assignment, receiving a salary even when not working, with vacation and benefits. In between jobs, Start sent him for training. Five months ago, a pharmaceutical company hired him fulltime after he had temped there.

Observers say that investing in training and working with the government employment offices contribute to Start's success in dealing with the long-term jobless. "We know from the Netherlands that this is a very successful way of bringing down long-term unemployment," says Mr. Wagner, the researcher.

"To have every jobless person be connected with a temporary job, that's quite revolutionary," says Gert Denkhaus, president of the German Association of Temporary Work in Berlin.

Fearing that temping would bring a US-style "hire and fire" mentality, Germany's unions have until now opposed it. In its Temporary Work Law of 1972, the government restricted the maximum length of temp assignments to less than seven months, but this year extended the limit to 24 months. That's still far less than what's authorized in Britain and the Netherlands.

Other regulations make it costly – if not impossible – to hire temp workers. Temping in the construction industry is prohibited. If an assignment lasts more than a year, the temporary agency must grant a temp the same salary, working conditions, and benefits as a comparable, permanent worker.

But the German Federation of Employers' Associations has lobbied for more flexible labor practices for years. "The emphasis on temporary work is pretty new in a debate that includes the unions," says federation president Renate Hornung-Draus.

Holger Schaefer, of the Bonn-based Economic Institute, agrees: "That this discussion takes place at all is a revolutionary step forward; 10 years ago the trade unions would have fought the idea tooth and nail."

According to a recent study by the McKinsey consulting firm, temping could create up to 4 million new jobs in Europe until 2010, and the biggest potential for growth is in Germany. In Britain and the Netherlands, countries with the lowest jobless rates in Europe, temporary workers represent respectively 3.7 and 4.5 percent of the total workforce, compared with 0.7 percent in Germany, according to the International Confederation of Temporary Work Businesses. The industry is also better regarded there, partly because it often has collective agreements with unions, meaning temps usually get the same salaries as staff workers.

Whether the new proposals will become law depends in large part on who becomes chancellor in September. Critics of the recent labor-reform initiatives say that Germany needs to create new jobs, rather than better manage the jobless. And the unions, although they've gone further than ever in accepting the idea of temping, have indicated they would stand strongly against cutting jobless benefits.

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