Josephine Teo’s selective use of ‘Germany example’

The following is a letter from a TOC reader.


I saw the video that you referred to in your “Clear signal that everyone matters – Josephine Teo” and wanted to point out another matter that was sidelined by her “everyone matters” example.

In the episode of Singapore Talking, Josphine Teo used another example – that of Germany’s 1990s unemployment benefits – to show how unemployment benefits will not work in Singapore. That is not entirely accurate or representative as I will point out below. (I should add that I am not familiar with unemployment reforms in Singapore.)

I quote her from Singapore Talking:

“Take Germany for example. Back in the 1990s, so it’s about 20 yrs ago. In Germany unemployment benefits were given with no conditions at all. And in fact social assistance to the unemployed could amount to about 67% of their last [unclear] pay, about two thirds. So what the Germans tried to do was to introduce a short term safety net to help people relieve the pain of unemployment.

But as it turns out they found that this kind of scheme actually created higher unemployement, higher longterm unemployment and the reason they discovered after many years was very simple. When you make unemployment benefits so attractive actually it reduces the incentive for people to find work. Yes and the longer they are out of work the more likely it is for their skills to be obselete and then actually what you have done is to really reduce their employability and their ability to get back into the workforce. You have done them a disfavour by starting out wanting to help them.

So Germany in the 1990s decided that they had to put a stop to it, they had to cut back, and they reorientated the system and guess what happened. In fact their unemployment rate declined significantly. And the Americans and there have been studies done and comments made about it, the Americans are trying to look at how the Germans have done it and to also examine whether they have the ability to do likewise.”

What Teo did not highlight in her use of the German example, is HOW the German government went about reforming government policies to reduce unemployment, while ensuring benefits for unemployed citizens.

According to the article “Lessons for the U.S., or Why Is Germany’s Unemployment Rate Lower than Ours?“, which also referred to the 1990s employment benefit problems and the 67% income issue, it was only after 2002 that the Hartz reforms were initiated, and these reforms were wideranging, and continued into 2005.

Some of the initiatives included:

  1. Recognised that payroll taxes and regulations are often the facilitator of longterm unemployment. They not only lowered some payroll taxes for low-wage workers, but removed laws that facilitated longterm unemployment and replaced them with laws that discouraged unemployment.
  2. Unemployed citizens could try to become entrepreneurs by receiving start up subsidies and lower social security taxes.
  3. Pay wage subsidies to employers who hire hard-to-place workers, with penalties for doing otherwise.
  4. Incentives to hire workers older than 55 yrs old.
  5. Low wage jobs are exempt from the equivalent of CPF contributions.
  6. Modernised the public unemployment services, by centralizing into one-stop, customer-driven systems which offer job training, job openings, resume writing, interview advice, counseling and social services. Such centres are paid on the basis of job placement so they are incentivized to place workers in jobs. They can also create temporary jobs for hard-to-place workers.
  7. Unemployed have ‘rights and duties’ including access to benefits in exchange for accepting all reasonable job offers.

Or to quote another article “America in Decline: Why Germans Think We’re Insane” which compared Germany and America in terms of unemployment benefits:

“Unlike here [in America], in Germany jobless benefits never run out. Not only that — as part of their social safety net, all job seekers continue to be medically insured, as are their families.

In the German jobless benefit system, when “jobless benefit 1” runs out, “jobless benefit 2,” also known as Hartz IV, kicks in. That one never gets cut off. The jobless also have contributions made for their pensions. They receive other types of insurance coverage from the state. As you can imagine, the estimated 2 million unemployed Americans who almost had no benefits this Christmas seems a particular horror show to Europeans, made worse by the fact that the U.S. government does not provide any medical insurance to American unemployment recipients. Europeans routinely recoil at that in disbelief and disgust.”

So perhaps when Teo said that Germany “reorientated” the system, she should point out how benefits are still entitled to the jobless and that their reforms are more hardhitting than ours, rather than use a point in (German) history as a cautionary tale against ‘unemployment benefits’.

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