European Economy. Economic Papers. Germany's growth performance in the 1990's

Table 3.19: Employment protection legislation (1998)
overall index
permanent contract
temporary contract
index
rank
Index
rank
index
rank
Italy
3.3
3
3.0
3
3.6
3
France
3.1
5
2.5
6
3.7
2
Germany
2.8
6
3.0
3
2.5
6
United
Kingdom
0.5
11
0.7
10
0.3
13
rank refers to the EU Member States ex Lux and US, J.
Source: OECD (2000) EMU One year on
3.2.4 Labour supply: Does work pay?
The last sub-section of this section looks at essential features of labour supply, namely the
financial incentive to accept a job offer, the possibility to combine work and family care and the
match between searched and offered skills.
Reservation wage
The decision to accept a job offer depends on the generosity of benefits when out of work (i.e.
its level, duration and, eligibility; and the enforcement of sanctions), as compared to potential
take-home pay, and on the rate of withdrawal of benefits when taking up a job. Concerning the
generosity of benefits, again, Germany does not seem to be an outlier. OECD (1999) provides a
summary measure of benefit entitlements, by which Germany scores well between the UK and
France. Moreover, this overall measure has been remarkably stable for Germany over a long
period and the relative positions of the three countries have not changed since 1980. Also when
it comes to availability criteria, a measure of the strictness of the administration of
unemployment benefits, the differences between the three countries are marginal.
Table 3.20 shows net replacement rates (i.e. benefits in relation to last earnings) for selected
levels of last earnings and household types. In the UK, initial replacement rates are higher than
in Germany for low-wage earners, but lower for the average worker. Initial replacement rates
are higher in France, but income support in the 60
th
month of unemployment is cut more
strongly. In fact, for a single, long-term benefit recipient in Germany, the difference between
out-of-work and in-work income is particularly low as compared to the other large Member
States; the difference for couples with children is less pronounced. The relative high level of
income support for the single worker type is almost entirely due to (means-tested)
unemployment assistance. It is more than probable that unemployment traps reside here.
Confronted with similar problems, the UK and France operate tax credits for those taking up a
job
50
. Both schemes are judged to be rather successful.