Evaluating the Employment Effects of Job Creation Schemes in Germany

2 Some Notes on the Relevance of Job Creation Schemes in Germany (p. 7-8)

2.1 Overview

In this chapter, I will discuss the relevant empirical and institutional issues of job creation schemes in Germany. For a reasonable evaluation of the impacts, a careful characterisation of the programmes in analysis is needed. To do so, I will start with a brief characterisation of the German labour market since German Unification in 1990 in section 2.2. Reviewing the development of the labour market is necessary as on the one hand, the situation in East and West Germany is clearly separated, and on the other hand, relevance and efficiency of job creation schemes depend on the actual situation of the labour market. Section 2.3 provides an overview of German ALMP and a description of the legal basis and institutional framework of job creation schemes. To base my evaluation of programme impacts on an adequate economic model, it is important to know the main determinants of participation and outcomes. Here, a particular focus is on the admission criteria and the allocation mechanism that are essential for modelling the participation process and for the construction of the comparison group. Furthermore, the admission criteria are a constituent part for the participants’ structure. As my empirical analyses in chapters 5 and 6 are based on programmes that have started during the years 2000 and 2001, I will focus on this time span in particular.

To improve the quality of my characterisation, a review of the experiences with job creation schemes in East and West Germany from previous empirical studies is given in section 2.4. Careful consideration of the results of these studies may help to obtain possible sources of heterogeneity and distinctive features of the programmes. Section 2.5 discusses the possible effects of job creation schemes taking account of the results from the previous sections of this chapter. The final section summarises the findings and implications.

2.2 A Brief Characterisation of the German Labour Market Since German Unification

The German Unification in 1990 reflects an incisive point for social, political and individual life in Germany. In consequence of the collapse of the Command Economy of the German Democratic Republic (GDR) two countries, which differed widely not only in their institutional and constitutional arrangements, but also in their monetary systems and real economic conditions, were unified (Siebert, 1991). In the last 15 years since German Unification, massive efforts have been made in social and labour market policy to smooth the differences of the labour markets between East andWest Germany. However, the situation is still clearly separated, and talking of the ‘German labour market’ might be misleading. The substantial differences in the regional labour markets in eastern and western Germany are to some extent the legacy of the former countries, but also a result of labour market and economic policy of the past years. The following description will characterise the labour market development in East and West Germany since 1990.

To point up some of the differences, Tables 2.1 to 2.3 present some selected figures of the labour market for the years 1991 to 2003 with a distinction between West and East Germany. Table 2.1 contains information on population, unemployment, unemployment rates and GDP growth. The population figures cover the resident population, the labour force potential and the working population. Whereas the resident population gives an idea of the relative size of both parts, labour force potential and working population are indicators for the economic activity. The unemployment category comprises the number of openly unemployed persons, of long-term unemployed individuals, of hidden unemployed persons and the sum of the open and hidden unemployment. Open unemployment is defined as the sum of all registered unemployed persons at the FEA. Hidden unemployment refers to the concept of the German Council of Economic Experts (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung). It contains all persons who participate in labour market programmes and would have been unemployed without those subsidies. Since they do neither receive unemployment benefits nor assistance, these persons are not registered as unemployed persons. The number of long-term unemployed persons is added to map the persistence of unemployment. Furthermore, the GDP growth in both parts as well as the productivity and gross wages per employee for East Germany in relation to the western level are displayed as indicators for the economic situation and development.