Hartz Evaluation: Integration Subsidies of Limited Effects – Deadweight Effects Prevail

The integration subsidies provided by the Federal Employment Agency enable only few elderly unemployed to find work more rapidly. Even though statistics have proven a positive impact on women in eastern Germany, in all other groups, subsidies created only deadweight effects. These are the findings of a recently published final report on the evaluation of the Hartz Laws I-III conducted by the Centre for European Economic Research (ZEW) in Mannheim.

Over the last years, the German Federal Government has repeatedly changed the legal conditions for subsidies. In 2002, an increasing number of elderly unemployed workers benefited from integration subsidies specifically provided for workers aged 50 years and older. In 2004, the Hartz III Law brought the integration subsidies for older workers into line with those of young unemployed workers. ZEW has found out how these changes influenced the employment opportunities of the affected workers.

The study shows that the extended funding instruments of 2002 hardly helped any elderly unemployed to resume their employment. On the other hand, the alignment of funding conditions in 2004 did not result in a relative deterioration of the employment possibilities of older unemployed workers with respect to younger ones. The reason for both developments is that companies scarcely change their recruitment behaviours after receiving subsidies. Large parts of these subsidies thus remain ineffective and deadweight effects occur.

In 2004, the restructuring of integration subsidies as part of the Hartz Laws led to the fact that the probability of subsidisation in the first six months among workers aged 50 to 52 decreased by about 1.5 per cent. However, at the same time the outflow from unemployment of this group only dropped by approximately 0.5 percentage points. The difference can be explained by the fact that the changes made the probability of an unsubsidised employment grow by one percentage point. This means, the companies received subsidies for the recruitment of employees they would have hired even without the financial support of the employment agency.

This does not apply for women in eastern Germany aged between 50 and 52. They benefited from the extended funding instruments of 2002. Reversely, their employment opportunities worsened due to the Hartz III Law: The probability to find work within six months decreased by two per cent.

Integration subsidies aim at overcoming placement obstacles based in the characteristics of the unemployed. Once a month, the employers receive these integration subsidies in the form of wage allowances as an incentive to hire unemployed workers. The employment can generally be funded over a period of twelve months. Local employment agencies fix the amount of funding, which can add up to 50 per cent of an employee’s earnings.

Contact

PD Dr. Bernhard Boockmann, E-mail boockmann@zew.de  

Prof. Dr. Thomas Zwick, Phone  +49 (0)621/1235-283, E-mail zwick@zew.de