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Germany's Painful Unemployment Fix

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Germany's Painful Unemployment Fix


Germany's Painful Unemployment Fix

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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As Washington looks for ways to lower the unemployment rate, we're going to look to Germany. Not so long ago, Germany faced a similar problem. It made some sweeping changes and now its unemployment rate has fallen to 6.2 percent.

Caitlin Kenney, from our Planet Money team, explains how Germany did it.

CAITLIN KENNEY: To figure out how Germany got where it is today, you need to go back 10 years. In 2002, Germany looked a lot like the United States does now, they had no economic growth and their unemployment rate was 8.7 percent and climbing. The country needed help, so the top man in Germany at the time, Gerhard Schroder, the German chancellor, made in an emergency call to a trusted friend.

PETER HARTZ: (Through Translator) I was actually surprised when I got the call.

KENNEY: This is Dr. Peter Hartz speaking through a translator. In 2002, Hartz was working as human resources director at Volkswagen. He and Schroeder had served on the company's board together. And Hartz had made a name for himself at Volkswagen by getting unions to agree to concessions in order to save jobs.

Schroder wanted Hartz to do the same thing for the whole country. So he created a commission and put Hartz in charge of it. Hartz's first idea was to do what he had done at Volkswagen - forget about long-term jobs with lots of worker protection and get people into flexible temporary positions.

HARTZ: (Through Translator) We saw that companies would indeed hire more people if they were able to take on additional people for temporary jobs, for smaller jobs.

KENNEY: Hartz and his commission gave these jobs a name: mini-jobs.

Thomas Huch, owns a company that produces steel tanks in Neuruppin, a town about an hour outside of Berlin.


KENNEY: He's a fan of mini-jobs.

THOMAS HUCH: It is not possible to give everybody full-time jobs. Mini-job means I haven't enough to do for a full worker, but I need a worker for several hours or so.

KENNEY: Huch says before the Hartz commission it was hard to just hire someone when you needed a little extra help.

A mini-job isn't that great of a deal for workers. In these jobs, they can work as many hours as the employer wants them to, but the maximum they can earn is 400 Euros per month. On the plus side, they get to keep it all. They don't pay any taxes on the money. And they do still get some government assistance.

And there's another benefit to the mini-job. Sometimes it can lead to a permanent position.

HUCH: You see that these people do a very good job. That is also then the possibility for him or for her to get a new job in our firm.

KENNEY: The number of people working in mini-jobs and other temporary employment has skyrocketed in the years since the Hartz's reforms became law. And after spiking initially, Germany's unemployment rate stands at 6.2 percent today.

So you might think Peter Hartz is celebrated in Germany, but he's not. Why? Because of his second big idea for fixing Germany's job market - he wanted to make life harder for the unemployed.

HARTZ: (Through Translator) It is reasonable to ask people to accept a low level of benefits, very little money - relatively little money, for a short period of time.

KENNEY: Here's what you get if you?re out of work for more than a year in Germany: 364 euros a month - that's about $500 - subsidized rent and heat, and a job counselor. Before the Hartz commission, you would get around 50 percent of your last income indefinitely for as long as you were unemployed.

I met Monica Cariben in Nuremberg. She's about to lose her job at an insurance agency. And like a lot of people, she prefers the old system.

MONICA CARIBEN: (Through Translator) I am upset. There are recipients who have been drawing this benefit for 20 years and they have a good life. And somebody like me, who comes in now, we get little money. And this is not worthy of a human being.

KENNEY: But for Hartz, that was the point. He wanted to make unemployment uncomfortable so that people would get off of it quickly.

HARTZ: (Through Translator) I would say that what is most important is to make sure that any unemployed person gets a job as fast as possible.

KENNEY: These changes haven't made Peter Hartz a popular figure in Germany. His legacy is controversial. He was convicted of paying off union leaders at Volkswagen to go along with his cutbacks.

But no matter how people feel about Hartz, it's hard to argue with the huge drop in the country's unemployment rate.

So what lessons can the U.S. draw from Germany? A lot of the regulations the Hartz Commission changed don't exist here. We already have lots of low-paying temporary jobs, and our unemployment benefits are nowhere near as generous as Germany's were. What worked in Germany, we've already done it.

Caitlin Kenney, NPR News.

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