An evaluation of German active labour market policies: a review of the empirical evidence
| Date | 04 December 2018 |
| Published date | 04 December 2018 |
| Pages | 377-410 |
| DOI | https://doi.org/10.1108/JEPP-D-18-00023 |
| Author | Moritz Zoellner,Michael Fritsch,Michael Wyrwich |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
An evaluation of German active
labour market policies: a review
of the empirical evidence
Moritz Zoellner and Michael Fritsch
School of Economics and Business Administration, University of Jena,
Jena, Germany, and
Michael Wyrwich
Faculty of Economics and Business, University of Groningen,
Groningen, The Netherlands
Abstract
Purpose –The purpose of this paper is to review the results of studies that investigate the most important
active labour market policy (ALMP) measures in Germany. A focus is also on programmes devoted to foster
entrepreneurship which can make important contributions to a country’s growth and social welfare.
Design/methodology/approach –The study relies on quantitative and qualitative assessments and a
comparison of results of previous studies on ALMPs.
Findings –The available evidence suggests that mostALMP measures increase labour marketprospects of
the participants.In particular, evaluationsof the entrepreneurshippromotion activitiesshow high success rates
as well as highcost efficiency. The bulk shareof participants of entrepreneurshipmeasures is still self-employed
after several years and nearly one-third of these businesses had at least one employee. The authors mention
problems regardingthe evaluation of previous programmesand highlight future challengesof German ALMP.
Originality/value –This is the first study on ALMP that has an extensive and explicit focus on
entrepreneurship-promoting programs.
Keywords Active labour market policy, Evaluations, Effectiveness, Entrepreneurship
Paper type Literature review
1. Introduction: a brief historical overview of German active labour market
policy (ALMP)
Over the last several decades, ALMPs have played an increasingly important role in coping
with unemployment. ALMPs are governmental programmes that intervene into the labour
market to sustainably reduce (structural) unemployment. It includes different approaches of
upskilling, a combination of reinforcement and employment assistance, and
entrepreneurship promotion. The overall aim of this type of policy is a sustainable
reduction of structural unemployment and an improvement of the qualifications of workers.
In many industrialised countries, the 1950s and 1960s were characterised by rapid
growth and technological change that led to shortages of skilled labour. To combat these
problems, ALMP was introduced for the first time in Sweden and spread afterwards across
several European and OECD countries (Fertig, Schmidt and Schneider, 2006; Bonoli, 2010).
Germany adopted ALMP to address such problems relatively late. Only in 1969 was the
Employment Promotion Act (Arbeitsförderungsgesetz) introduced. The focus of this early
type of ALMP was on upskilling workers to meet the requirements of technological change.
The focus of German ALMP shifted from general upskilling to reducing surging
unemployment in the aftermath of the oil crises of 1973. The policy comprised a large
Journal of Entrepreneurship and
Public Policy
Vol. 7 No. 4, 2018
pp. 377-410
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-D-18-00023
Received 26 June 2018
Revised 10 September 2018
Accepted 10 September 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
JEL Classification —J08, J64, J68, L26
The authors gratefully acknowledge support by Javier Changoluisa in all stages of the
preparation of this report. Jacob Jordaan and Erik Stam provided very helpful comments on an
earlier version of th e text.
377
German active
labour market
policies
number of labour market and training programmes designed to raise the qualification level
of the unemployed workers.
In the 1980s, a number of labour market and training programmes were implemented.
These labour market programmes experienced a significant increase in the total number of
participants. Consequently, the yearly expenditures for ALMP grew steadily. By the second
half of the 1980s, these expenditures were above the OECD average (Bonoli, 2010).
In 1985, based on the experiences of entrepreneurship promotion programmes from other
OECD countries, the German Government decided to implement an ALMP measure
designed to incentivize unemployed individuals to start their own business. The measure
was introduced based on the assumption that unemployed people have serious problems
accessing the capital market to finance the start-up of an own firm. Thus, in 1986, the first
measure to promote self-employment out of unemployment, the bridging allowance (BA)
(Überbrückungsgeld), was introduced to enable unemployed people to start their own
business (Wießner, 1998) (for detailed information on this measure see Section 3.3).
When Germany reunified in 1990, East Germany adopted the conditions of a modern
market economy from West Germany. The rapid reunification induced massive structural
changes accompanied by high levels of unemployment in the former German Democratic
Republic (Fritsch et al., 2014). Because firms operating in the East German market had not
been exposed to open competition, they had fallen behind Western European firms in terms
of production technology, product quality and product variety. Generally speaking,
East German management was not familiar with a market-based economic system and
lacked appropriate management skills. As a consequence, many of the East German
companies had to exit the market (Fritsch and Mallok, 1998; Lechner et al., 2007).
To prevent mass unemployment in the early stages of the transition process,
investments in ALMP peaked in 1992 and reached up to 9 per cent of the East German
GDP (Lechner et al., 2007; Bonoli, 2010). ALMP became one of the most important
economic policy instruments of the German Government. New ALMP measures for the
East German labour market were introduced, such as short-time work. In 1991, around
one-third of East German workersparticipatedinoneormoreALMPmeasures(Rinneand
Zimmermann, 2012). Further, while the initial measures started as a tool to combat
structural or long-term unemployment, the framework of those measureschanged to focus
on unemployment in general.
One major challenge of ALMP in East Germany was that the skills of East German
workers did not meet the requirements of a modern market economy. As a consequence,
several types of training measures were introduced. Furthermore, employment creation
measures (e.g. public job creation) and measures of employment promotion (e.g. wage
subsidies) were implemented to increase the labour market prospects of low-skilled workers
and to improve the employability of unemployed individuals (see Sections 3.2 and 3.3)
(Lechner et al., 2007; Bonoli, 2010).
The ongoing economic struggles caused by German reunification made a reorientation of
ALMP necessary. The increasing number of long-term unemployed individuals led to a
stronger focus on the term “activation”. This new focus led to two major political changes in
Germany. The first change was the introduction of the Job AQTIV Act in 2001 that provided
a large number of tools to activate, qualify and train unemployed individuals. The 2001 Act
was the legal precursor of the second important change, the so-called Hartz reforms.
The Hartz reforms aimed at decreasing the fiscal disincentive to work and at modernising
the German labour market by restructuring and implementing new ALMP measures,
ranging from contracting-out placement services to the creation of incentives to start a
business out of unemployment (for more details, see Section 3)[1].
A new ALMP measure for entrepreneurship promotion implemented in 2003 was the
start-up subsidy (SUS) aimed at different target groups than the BA. The BA was attractive
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for more highly qualified unemployed individuals with higher previous earnings who were
more like business owners starting out of employment. In contrast, SUS focused on
unemployed individuals with less education and lower previous earnings (Caliendo and
Kritikos, 2010). The goal of the measure was to remove impediments faced by unemployed
people, such as constrains on the capital market. In 2006, both entrepreneurial promotion
measures were combined and became the new start-up subsidy (NSUS) (for more details,
see Section 3.3). This change was an effort by the German Government to simplify the
system of ALMP measures.
The literature shows that the promotion of self-employment is a highly successful
mechanism that can lead to a sustainable reduction of unemployment and the creation of
new jobs (Caliendo and Kritikos, 2010). In this survey, we focus on so-called micro-level
evaluation studies that investigate the effect the programmes have on the likelihood that an
unemployed individual will become employed. In a second step, we consider studies that
evaluate the aggregated impact of programmes, including the impact of these programmes
on non-participants. We pay specific attention to entrepreneurship-facilitating programmes
since entrepreneurship can be an important source of growth especially if the start-ups
are of high quality (e.g. Fritsch, 2013). Therefore, it is not only crucial to understand
the determinants of entrepreneurial choice and self-employment ( for a recent survey,
see Simoes et al., 2016) but also the role and effectiveness of ALMPs that aim at promoting
self-employment and the quality of the founded businesses.
The remainder of this report is organised as follows. First, we provide briefly the
rationales and the economic theory behind ALMP. This is followed by a description of
the most important past and current measures and instruments (Section 3). In Section 4, we
discuss the challenges of evaluating ALMP. A summary of the most relevant evaluations at
the individual level follows in Section 5. Section 6 reviews the most important evaluation
studies at the aggregated level. Section 7 discusses future challenges of the ALMP, and the
final section summarises and concludes.
2. Economic theory and the rationale behind the need for ALMP
At the micro-level, the aim of ALMP is improving the employability of individuals that
implies a reduction of unemployment at the macro-level. Economic theory provides several
arguments why ALMP can be effective to reach this goal and why ALMP interventions may
do better than a pure market solution.
The first rationale for state-provided ALMP is that it is difficult for jobseekers to finance
job training that enhances their qualification due to credit constrains (Council of Economic
Advisers, 2016; Mikelson and Nightingale, 2004). Thus, a private market for job training can
hardly come into being. At the same time, the human capital of job seekers depreciates while
being unemployed. Devaluation of human capital makes it harder to compete in the labour
market given that theory (Becker, 1964) predicts and empirical evidence (Hanushek et al.,
2015) shows that human capital is of utmost importance for labour market success.
A related second rationale for ALMP is combating unemployment caused by
structural change and crises that imply huge individual investments in upskilling to
adjust to the needs of the labour market in the aftermath of structural shocks. Again, a
private market for such services may not come into being because unemployed people
cannot afford to participate. As a consequence, the demand for upskilled labour does not
match the respective supply. ALMP can help to overcome this labour market friction by
further education and upskilling programmes. In this regard, another rationale for
ALMP is that firms do not need to invest in general human capital of potential employees
whichcouldbeareasonfornothiringotherwise, especially in times of economic crisis.
Against this background, ALMP should be contributing to increase employability and
reduce unemployment.
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labour market
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