EZA 743 Briefing note:

08 June 2006

Germany – Labour Market Reform

German labour market – reform of the reform On 01Jun the German government announced a tightening of last year’s labour market reforms (Hartz IV) to stem a trend of soaring costs. However, the act only cures the negative symptoms of Hartz IV rather than tackling its general shortcomings – too high a level of minimum wage and continuing inefficiencies of the central labour office. The current debate on labour market reforms offers valuable insights into the working of the coalition government with reforms responding to fiscal pressures rather than boosting the capacity of the German firms to create new jobs.

Asset conclusions: political constraints to labour market reform reduce the scope for job creation and consumption; negative impact only on German firms with high domestic exposure.

© Graham Bishop