Reacting to the Crisis
France and Germany
Common Themes
Both countries: • earnings-related social security post WW2• extend cover to self-employed, agriculture & professions
in 1960s• Less industrial employment (1990s): more early retirement• struggle with mass unemployment (1990s)
– ? Consequence of rising labour on-costs – Cut contributions: more tax (breach ECB regulations)
• Falling fertility (replacement ratio problems)
Major differences
• Structural:– Federal Germany; centralised France– French has bipartite funding: German tri-partite– Germans have separate schemes for 5 risks
• Political:– French battles over control of social security– different attitudes to female employment & family
allowances– German reunification
France: origins and principles
• Planned economy (Monnet): modernise; reward CP & contain Germany
• 1952: SMIC (minimum wage) = first national reform
• Social security:
– local funding and democratic administration
– horizontal solidarity (‘insured’ = employed)
• supplementary rights:
– industrial agreement (pensions: ARRCO & AGIRC: unemployment: UNEDIC)
– mutuelles cover ‘ticket moderateur’ (health)
French problems
• 1967: central control over local caisses
• emerging deficits – health: doctors will not agree standard fees– unemployment rises (1980s) : social exclusion– higher social insurance contributions reduce
offers of permanent job contracts
• conflicts over ‘flexibilisation’
French reforms: from Bismarck to Beveridge?
• RMI: state funded revenue for unemployed (25+): inc. social security contributions
• CSG: state funding for social security• private supplementary pensions restructured• 1995: Juppe Plan
– hospital finance nationalised– family allowances means-tested– public sector pension reform rejected by strikes
France: the shift to the right
• Jospin government (socialist) introduces:– 1997 youth employment programme – 1999-2000: 35 hour week
• 2002 elections: right wing administration (Raffarin) = ‘flexibility’ + help for private sector– From RMI to RMA (state support for ‘activity’)– Attacks on 35 hour week & benefits restructured
(UNEDIC)– Public sector pensions restructured (in spite of mass
strikes summer 2004 and 2009)
Instability in face of crisis
• May 05: de Villepin takes over as PM from Raffarin (French reject EU constitution)
• Nov 05: Paris suburban riots
• Apr. 06: de Villepin CPE (new youth employment contract): mass protest.
• Summer 06 Sarkozy elected president – liberal agenda on labour law
W.Germany: origins & principles
• Post 1945 de-Nazification: decentralisation & reversion to Bismarckean ideal
• Two-tier system: separate entities (no cross-over)– Social policy: co-determination: wage protection and
status guarantees via (5) social insurance schemes.– Welfare state: local housing and social assistance
• ‘Social market economy’ (workplace partnership)• Separation of federal / Lander / industry powers
under constitution (subsidiarity) = Basic Law
W.Germany: post-war development
CDU domination (until 1970s) = little change
• 1957: state pensions: 60% previous salary
• 1961 rights to social assistance guaranteed
• 1964-74 slow introduction of child benefits
• 1976: married women permitted to work (on condition that family obligations are met)
Re-unification (1989)
• GDR welfare centralised + citizen-based (‘right to work’ = no unemployment)
• GDR economy ‘restructured’:– 5 new Lander created: same social security as FDR– Currency conversion on parity :1Ostmark = 1 D/mark.– Rising social dependency: 50% jobs in old GDR
disappear (1990-92)– 1993: Solidarity Pact: FDR social security
contributions raised: unemployment rises
• 1994-98: cuts in pensions and health insurance
Political outcomes
• Germany elects SPD coalition (Schroeder)– More Federal support for training / apprentices
– Negotiated ‘flexibilisation’
– Central control over ‘self administrated’ funds
– Focus on demographic crisis – Riester pension reform 2001.
• 2005: new cuts in unemployment support• Nov. 2005 Angela Merkel elected Chancellor
German focus on pension reform
• Riester 2001.– Subsidised private pensions (conversion of earnings in
return for lower state pension)
– To be offered by all employers
– Proportion of soc. ins contribution diverted to personal pension pot
• Results (2005)– middle classes take advantage
– Lower income earners lose out – especially women
Unemployment: Hartz reforms
• German UI benefits very high and of long duration• Conversion of ALMP policies (2003-5): Hartz
Reforms introduced by Schroeder• Tackle unemployment across the board (ie long
term claimants and social welfare claimants)• Introduction of New Public Management• Deregulation of labour market (mini-jobs: midi-
jobs etc.)
Conclusions: economic outcomes
• German major industrial companies haven’t relocated, in spite of high labour on-costs.
• German unions much stronger than French (in private sector) : constitutional protection
• French (right-wing) government - able to restructure welfare without further conflict?
• Both countries equivocal about EU expansion (immigrant (cheap) labour)
• Both Germany and France in breach of Growth and Stability Pact.
Conclusions: trajectories of social reform
• 1980s: increase contributions (worsens labour market problems) = consolidation
• 1990s: retrenchment – health, pensions and unemployment benefits
• 2000s: individualisation: labour market activation (longer working lives: women into work)
• All points to influence of EU and EMU (Maastricht)