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)

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