Long-term Unemployment Blip in Rosy Jobs Outlook

Lost in Germany’s great employment news are about one million people persistenly out of work. A new program aims to help them but excludes some of the biggest cities like Hamburg with many of the country's long-term unemployed.
Around a million people in Germany still can't find a job despite the country's booming economy.

Friedhelm Siepe, the director of the Hamburg jobs center, doesn’t hide his disappointment over being snubbed by a new program to reduce long-term unemployment in Germany.

“It is extremely painful when extra money is being distributed through the special program, and an entire state emerges empty-handed,” Mr. Siepe said.

Hamburg, the city-state in northern Germany with a population of about 1.75 million people, applied to take part in the new program, “Social Participation in the Labor Market,”  as did 265 others job centers in cities and districts across the country.

But the city – where half of job-center clients have been out of work for more than four years – didn’t make the grade for selection by the federal labor ministry. Another big city, Munich, also failed to receive support from the special program with funds available for only 105 job centers.

The project is a building block of a larger program for reducing chronic joblessness. It was set up last year by Germany’s minister of labor, Andrea Nahles of the center-left Social Democrats, the minority partner in Germany’s governing coalition.

The aim is to break the long-term jobless cycle, and prevent their children from someday having to apply for Hartz IV benefits.

The need for such a program might seem odd in Germany, which has been surging from one employment record to the next and is desperately seeking qualified workers. But the jobs wonder is passing up about one million people who have been without work for a year or longer.

The “Social Participation” project is aimed at especially difficult cases – the recipients of Germany's Hartz IV unemployment and welfare benefits. People receiving these benefits have received support for longer than four years, have health problems or are raising children.

The aim is to break the long-term jobless cycle and prevent their children from someday having to apply for Hartz IV benefits.

Up to €450 million, or about $510 million, is available for the program through 2018. Participating job centers offer a maximum of €1,320 per month in wage costs to employers, who then give a long-term unemployed person a chance. In ideal cases, employers offer jobs for 30 hours a week.

Germany's big cities are home to many long-term unemployed.


Munich's situation wouldn’t be so bad if enough money were available in the normal budget to pay for integrating the long-term unemployed into the work force.

“But our budget has been too little for a long time,” said Anette Farrenkopf, jobs center director in the Bavarian capital. “And each year, there is less money.”

The labor ministry said it “stabilized” the annual budget for jobs centers at about €8 billion since 2013. But because administrative costs increase, for example through raises for staff members, the centers end up distributing less and less money.

Mr. Siepe said his center had to divert 9 percent of the €105 million intended for integration of the long-term unemployed into its administrative budget this year. Next year, he expects the figure to be more than 10 percent.

The 303 jobs centers that are financed jointly by the federal employment agency and by local municipalities had to reallocate €513 million, or 19 percent of their money for integrating long-term jobless people. This was revealed following an inquiry by the Green Party that accused the government of setting up symbolic but limited programs to conceal underfinancing.

Many labor-market experts question whether 10,000 applicants can be found for the program, not to employers.

Their doubts stem from the track record of another jobs program, “Building Pathways.” In that effort, the federal government and employment agency budgeted €280 million in 2014 to finance in-company training for unskilled workers, thereby “immunizing” them against the threat of unemployment. Only €150 million of the budgeted money was used, and things don’t look better for this year.

Such news can easily be lost in Germany’s overall positive jobs picture. In August, the nation’s employment barometer – prepared exclusively for Handelsblatt by the Ifo Institute for Economic Research – reached its highest level in over three years.

“In all sectors except industry, more companies want to hire additional workers,” said Ifo economist Klaus Wohlrabe, who evaluates the monthly survey of 9,500 firms. “The robust growth is continuing to bring good news to the labor market.”


According to the report, the retail industry aims to increase hiring because of growing consumer confidence. The same is true for major construction trades. In the services sector, the employment barometer rose to its highest level since April 2011.

But there is still cause for concern for industries depending on exports. Mr. Wohlrabe said the readiness to hire is “growing lame” for carmakers.

A large part of the survey was conducted before the recent turbulence in financial markets. Problems with exports, especially to the Far East, only became evident in the last days. Expectations for German exports have declined now for five months in a row.

There are clearly muted export forecasts, especially among petroleum-processing firms and the chemical industry, where the declining price of oil is having an impact.

However, forecasts of the auto and machine sectors, two key German industries, remain optimistic because of foreign sales.

According to estimates by the German Institute for Economic Research, DIW, the country’s economy is expected to continue growing robustly in the third quarter. Just as in the second quarter, economic output is forecast to grow by 0.4 percent.

The research institute sees consumption as the basic motor for growth, but did offer a warning.

“As a result of the tense situation in the euro zone – in addition to worries about the Chinese economy and somewhat weaker global growth – the German economy could soon lose some steam,” said Ferdinand Fichtner, whose office monitors economic growth at DIW.

Frank Specht covers Germany’s labor market and trade unions from Berlin. Axel Schrinner writes about tax and finance policy to contact the authors: [email protected] and [email protected]