Workplace Issues
Valuing Older Workers – How Germany Plans to Reform Labor Practices
Opinion
March 2007
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- The Influence of Demographic Change on the Labor Market: Germany’s Experience
- Aging Everywhere: Germany
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By Dr. Ralf Brauksiepe, MdB
Member of the German Bundestag
Chairman of the Working Group on Labour and Social Affairs
of the CDU/CSU parliamentary group in the German Bundestag
The German welfare system has a long tradition, going back to the Empire under Wilhelm I and Otto von Bismarck. The statutory old-age pension system is the largest social-security system in Germany. A system of earnings-based, index-linked pensions was introduced in Germany 50 years ago under the Federal Chancellor at the time, Konrad Adenauer. In addition to income tax and contributions to health insurance long-term care insurance and unemployment insurance, workers and their employers each pay equal amounts into the old-age pension system. Between them, they currently pay a rate of 19.9% of an employee's gross earnings. The level of pension to which people are entitled is based on what they have earned over the whole of their working life and is currently at the level of around 68% of people's final net wage.
The German social security system is presently facing major challenges. Since the beginning of the 1990s, the number of those out of work has doubled. And the number of those who have already been unemployed for longer than twelve months is particularly alarming. During the first twelve months of unemployment, every employee receives unemployment benefits, which is financed by the contributions paid by workers and their employers. This unemployment benefit represents around 2/3 of people's last net wage. After twelve months, people are entitled to long-term unemployment compensation, which is financed through taxation, and is only intended to meet people's basic needs.
So the main problem faced by the social security system is the high level of unemployment, and the battle against unemployment has also been given the highest priority by the government led by Federal Chancellor Merkel. The high rate of unemployment means that there are less workers paying into the system. At the same time, more has to be spent on unemployment benefit. There is therefore a need for action in order to place the social-security system on a stable footing once more.
The Reform Debate
Last year in Germany, we agreed within the governing coalition, made up of the Christian Democratic Union/Christian Social Union and the Social Democratic Party, on the cornerstones of a reform including the raising retirement age to 67. The legislative proceedings are currently underway. In view of the demographic trends which will be seen in the future, this step is vital. In the 1960s, the average length of time for which people received pensions was 10 years, whilst today's higher life expectancy means that people receive pensions for an average of 17 years. At the same time though, it is clear that raising retirement age must go hand in hand with a tangible improvement in the employment perspectives of older workers. At present, only around 42 percent of workers aged between 55 and 64 are employed in Germany. And of the 4.25m men and women currently unemployed, over a quarter are 50-plus (January 2007: 26.3 percent).
In view of this alarming figure, we must, on the one hand, ensure that those people over 50 who are out of work are given an opportunity to become economically active once again. At the same time, older workers need to remain in paid employment longer, both today and tomorrow. One of the key factors here is continued training for middle-aged workers, empirically demonstrated by international experience. Only lifelong learning allows societies to sustain technological progress in the longer term. Overall, further training provision must be better tailored to the specific needs of older people. Alongside agreements between employees and employers' representatives, the legislator must also take action to create the necessary framework. The cabinet set the wheels in motion in mid-September with its "Initiative 50+" program. We are currently in the process of putting these proposals into legislative form, thus making an important contribution to enhancing employability and employment prospects of older people in Germany.
Another important aspect is the recognition of the achievements of older workers. It is not only the demographic change taking place which is slowly leading to a change of mindset. Increasing numbers of companies realize the importance of the experience and drive which older workers bring to the job. I strongly believe that this shift in mindset will be consolidated. Today, already, many firms are lacking the experience and skills of older workers. At present in Germany, there are 44 people over 60 years for every 100 people employed. In 2050, this figure will have changed to approximately 78. The most important measures introduced by the law to improve the employment perspectives of older people are:
- Wage subsidies for unemployed older persons who take up lower paid employment (the so-called "combined wage model");
- Subsidies for employers who employ older workers;
- Enhanced support for further vocational training; and,
- Measures to facilitate temporary contracts for workers above the age of 52.
The "Initiative 50+" program for the first time brings together and coordinates all activities aimed at reintegration of older unemployed people into the workforce and increasing the number of older people in work. In this context, existing activities were adapted to the needs of the labor markets and further developed.
I see both projects – the "Initiative 50+" and the idea of raising retirement age to 67 – as urgently necessary in order to place the social security systems in Germany on a sustainable footing for the future. In the coalition agreement signed between the CDU/CSU and the SPD, we agreed to move Germany forward once again through investments, ground-breaking reforms and reform of state finances. I believe that we are on the right path.
Biography
Dr. Ralf Brauksiepe, MdB is a member of the German Bundestag and Chairman of the Working Group on Labour and Social Affairs of the CDU/CSU parliamentary group. He has served in the Bundestag since 1998, where he served on several committees including EU affairs, economic cooperation and development, and economics and work. He is a member of the Christian Democratic Union (CDU), a party in the majority coalition government of Germany.
Dr. Brauksiepe received his Ph.D. in economic science from Ruhr University Bochum. He is married with four children.