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Government policy
Government invests greatly into the labour market and managing unemployment. Evidence can be found in laws (national minimum wage), training schemes and social benefit. Germany and Britain are following quite different tracks to fight unemployment.
Minimum wages
More then two years ago the British government decided to introduce national minimum wages (NMW) to prevent a widening pay gap throughout regions. Advantages are obvious – as workers get a higher income they can spend more money on food, health, education and children. Another advantage for the state is that the increased wage takes some workers over the state benefits threshold. The state saves money and the burden is assumed by the private sector.
The introduction of this law caused sceptical reaction, as many people thought NMW would put jobs into danger instead of helping people. Poorer regions like Yorkshire and Humber were especially concerned. A total loss of 8000 jobs was forecasted by economists; including 4200 in the hotels and catering industry due to low wages. The forecasts however were inaccurate.
Two years later the government provide proof of success and disputes that job losses were caused by the NMW. The biggest increases in average earnings over the year to April 2000 have been in traditionally low-paying regions such as the North-East (up 4.7 per cent to £365 a week) and Yorkshire and Humberside (up 3.8 per cent to £373).
As the NMW was introduced with £3.60 it has increased to 3.70 and will rise to £4.10 by October 2001. Even the Confederation of British Industry has accepted the increase to £4.10 but fears a knock-on effect on higher-paid workers if NMW will continue to rise.
The German government also introduced minimum wages but only for certain sectors and for other purposes. Wages only exists in two sectors: construction work and roofers. The aim was to stop companies recruiting cheap labour from the former East Bloc and therefore gain competitive advantages.
As trade unions have a strong position in Germany most sectors have a kind of minimal wage set by negotiation between trade unions and employers’ federations.
Power of trade unions
Compared to Britain the power of trade unions within Germany is very high. The two biggest trade unions world wide with approximately 6 million members are located in Germany and have considerable influence on pay negotiations and government policy.
Trade unions helped put the new red-green government of Chancellor Gerhard Schröder into power in October 1998 and Schröder appointed Walter Riester as minister for work and social issues from IG Metall, the German trade union for workers in the metal industry.
Since then the trade unions have a stronger influence on politics than they had under the conservative government of former Chancellor Helmut Kohl during the past sixteen years. They participated in the discussions about the reform of the tax laws in 1999. They are still members of the Bündnis für Arbeit, the alliance for jobs, in which all the social partners such as the representatives of the employers discuss with one another and the government ways to fight unemployment. And-recently-the trade unions began influencing the reform of the retirement law, the next big reform project of the government. Trade unions do not want pensions reduced to the level proposed by government.
Employment protection laws
Britain’s employment laws are probably the most lax labour laws in Europe with the policy of attracting investment in mind. It should give Britain a competitive advantage against the other European states because labour is one of the more expensive and inflexible production costs and therefore crucial to investment decisions. Government policy assumes that if companies can sack employees easily they are willing to match work and employees more accurately.
A good example for European employment laws is Marks and Spencer and the reaction to their announcing closure of all overseas facilities. Key issues are the consultation process and the financial benefits. In Britain generally speaking the only thing private companies have to do to make staff redundant is to give them 90 days notice and pay redundancy payments or provide alternative employment. If more than 100 employees are made redundant the consultation must be longer than 90 days which means companies add one or two days.
In Germany the employee’s representative must agree to the terms of proposed redundancies. The company is also obliged to help find alternative employment and in areas of high unemployment they also have to pay a kind of tax to the state to help fund training initiatives. Additionally companies have to pay compensation for loss of office depends on the employees job tenure.
The different employment protection law and the resultant cost was one reason GM decided to close its Luton plant instead of their German counterpart.
But there is improvement for British workers. The EC plans to implement an information and consultation directive, which might be passed regardless of the UK government’s objection. This would oblige medium and large UK companies to set up work councils.
Active labour-market policies
Are measures taken to increase the employment prospects of the unemployed without creating upward pressure on wage levels. Such policies embrace almost anything from better advice and job counselling to training measures to direct job creation, through subsidies or public-sector employment. They are distinct from the passive measure of paying out state benefits to the unemployed. The distinguishing characteristic of active labour-market measures is that they do not rely on general macroeconomic growth to generate employment; nor do they include measures designed to price the unemployed into existing jobs.
Government schemes
In the UK there has been a growing interest in active labour-market policies and, in 1997, a comprehensive welfare to work package was introduced, for those under 25 and unemployed for over six months. This embodies a `carrot and stick' approach, combining the threat of loss of benefit, with the opportunity of a place on a training scheme, community work, or a temporary job subsidy.
Today the “New Deal” scheme can be found for nearly every population group, for partners of unemployed people, for disabled people, for lone parents or people over 50 years old. More than 280.000 people have found a job via the New Deal scheme where 184.000 can be defined as secure or permanent. The scheme has helped to lower unemployment in the UK but mostly it is a fact of healthy macroeconomic conditions than microeconomic Government measures.
In Germany the Government schemes are similar but not as pro-active as the New Deal scheme. If unemployed people refuse a job offer or an interview, job centres have the authority to cut benefits but do not do so consistently. Therefore the German Government has to invest a lot of money in creating jobs, job training and subsidised jobs to stabilise the unemployment rate.
Social benefits
As social benefits are not that attractive in the UK, i.e. £53.05 per week for people over 25 years as the highest payment without premiums, people are more likely to seek a job. Up to 50% of all people with a low income are supported by unemployed people. This is in contrast to the EU average of 38%.
This indicates that there is no financial incentive to claim benefits and to stay at home as living standards will dramatically decrease during times of unemployment. People can earn more money just by working 15 hours a week at the national minimum wage (£3.70).
In Germany the amount of social benefit depends on the latest income. Unemployed people can receive up to 67% of their latest pay check for a maximum of 720 days. The problem is if they accept a job offer, which is not as good paid as the last job, and become redundant after a short period of time, the social benefits will decrease. A lot of unemployed people fear losing their benefits and therefore reject any kind of low paid jobs. Job centres try to handle this phenomenon with a 100% benefit cut for a one-month period.
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