Institutional moral hazard in the multi-tiered regulation of unemployment in Germany

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1 Institutional moral hazard in the multi-tiered regulation of unemployment Germany – Background paper Chris Luigjes & Frank Vandenbroucke December 2015 This document reflects views only authors and European Commission cannot be held responsible for any use that may made information contained therein Please refer to this as follows: C F (2015) support ‘Institutional Moral Hazard Multi-tiered Regulation Unemployment Social Assistance Benefits Activation – A summary eight country case studies’ Abstract has been written preparation a research project funded by (on Feasibility Added Value Benefit Scheme contract VC/2015/0006) adds detailed analysis following deliverable project: studies; but it was not We concept ‘institutional hazard’ analyse intergovernmental relations within welfare states specifically domain unemployment-related benefits related activation policies (the ‘regulation unemployment’) is one separate studies focuses on Responsibilities German are divided between federal government Public Employment Services (PES) local level with supervisory role regional The system relatively centralised result reforms aimed at mitigating institutional increasing divergence insurance social assistance caseloads Specifically these created new scheme more tightly regulated placed responsibilities one-stop-shops operated jointly PES municipalities Keywords: hazard; states; relations; insurance; assistance; Active Labour Market Policies; activation; policy; 2 Germany1 thank Regina Konle-Seidl Werner Eichhorst very useful exchanges extensive comments our drafts List Abbreviations ALG I Arbeitslosenversicherung often referred Arbeitslosengeld (unemployment insurance) II Grundsicherung für Arbeitsuchende (social assistance) ARGEn Arbeitsgemeinschaften (pre-reform joint one-stop shops; despite current Gemeinsame Einrichtungen still ARGEn) BA Bundesagentur Arbeit (federal PES) BMAS Bundesministerium und Soziales (German Federal Ministry Affairs) SA SGB Zweites Sozialgezetsbuch (legislation governing II) III Drittes I) UI Insurance Introduction federation which However always involves several important actors: semi-independent (Bundesagentur or BA) regions Heterogeneity practices instances were among contributing factors leading up Hartz IV experience followed make an interesting Before 2002-2005 had multiple employment-related benefit schemes administered different levels More importantly those rested hands set-up akin Switzerland Austria In face similar challenges (a dichotomy heterogeneity performance) opted (SA) combined (into became centrally financed changes (UI) modest remained fully governance beneficiaries underwent introduced shops central authorities side-by-side It consortia subject subsequent issues arose constitutional also practical nature unique feature model parallel have out Starting policy experiment so-called Optionskommunen since become embedded legislation thereby creating three types 3 perform services: offices Notwithstanding could argued most all cases As explained synthesis report we distinction ‘principal agent problems’ expression situations two political constituencies involved; if actors involved lower do principal-agent problems Our ‘principal-agent relation’ can questioned institution such (BA): ‘agent’ self-governing partners ‘principal’ ‘principal-agent’ terminology used recognize validity criticism2; corroborated typology developed Mabbett Bolderson who argue multi-level prevails relationships governments administering institutions security rather than simple (Mabbett 1998) Nevertheless context want maintain involving non-political (including latter some extent ‘principals’) follow-up will return question indebted point 4 (Arbeitslosenversicherung federally legislated implemented Its replacement rates vary 60% 67% previous net wage depending whether beneficiary children maximum duration years Jobless workers able available actively seeking employment insured minimum twelve months two-year period eligible 5 strictness eligibility criteria average compared other OECD countries (see Figure 1) There reasons this; hand there comparatively strict availability requirements suitable work job search monitoring On relaxed sanctioning regime 2) See paragraphs 89 129 149-154 118-121 147-148 155-160 Overall Source: Langenbucher p 27 Strictness codified (SGB III) employer employee contributions 6 administration disbursement operates 178 over 773 branches overseen 10 directorates Much like its Austrian counterpart at-arm’s-length agency ministry 7 responsibility operations lies management board (Vorstand) monitored tripartite (Verwaltungsrat) Management committees supervise 341-349 regulations amounts how they collected when paid Paragraphs 363-365 determine funding comes from level; deficit covered (Ebbinghaus 2007 pp 35-36) sections chapter 11 0 Average 8 cases6 inform misconduct left untouched sole legislative authority because no meaningful autonomy determining parameters regard sensu stricto neither decentralised nor delegated analytical grid paragraph 374 becomes clear Table structural differences across Länder Unfortunately data per municipality region readily quite large making probable indeed size Since both entails redistribution EU Force Survey NUTS own calculations 1999 2000 2001 2002 2003 2004 2005 2006 9 98 13 12 Standard deviation 92 05 32 26 94 43 Coefficient variation 45 50 56 49 44 42 36 2008 2009 2010 2011 2012 2013 2014 08 07 16 91 09 03 65 33 21 39 35 34 four five six