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Local Labour Market and Employment Policy

Reinhard Wieczorek

Local Labour Market and Employment Policy

1. Local Labour Market and Employment Policy Practice to Date
2. Mass Unemployment: A Major Societal Problem
3. 2005 - Year of Change?
    3.1 Legislation
    3.2 Implementation
4. Components of Future Local Labour Market and Employment Policy
    4.1 Reducing Disparities
    4.2 Prevention
    4.3 Creating More Jobs
    4.4 Job-Generating Structural Policy
5. The Example of Munich
    5.1 Arbeitsgemeinschaft für Beschäftigung München GmbH
    5.2 The Munich Employment and Qualification Programme (MBQ)
6. Conclusion


This article reflects the author's experience in almost 15 years as head of section for employment and economic affairs in the Munich municipality and chairman of the supervisory board of the Arbeitsgemeinschaft für Beschäftigung München GmbH (Munich Consortium for Employment Limited). The account given of local labour market and employment policy structures is accordingly influenced by the situation in Munich, an economically strong and attractive German city. But even in a city like Munich, the situation for difficult-to-place jobseekers and the long-term unemployed has steadily deteriorated. Munich, too, suffers from job outsourcing and an ever higher base of unemployment. Ultimately, local differences are only marginal variations in a ubiquitous challenge.


1. Local Labour Market and Employment Policy Practice to Date

In many German communities, especially large cities, local labour market and employment policy has a long tradition. Over the past 20 years, local authorities - setting different priorities and using various organisational arrangements - have established themselves in a number of autonomous local government spheres of action contributing to the locational factor of "social peace."

Motives have been similar: in the early 1980s the rapid rise in unemployment and entrenched long-term joblessness posed major challenges for cities. Local labour market policy was increasingly recognised as a necessary correlate of classical economic development promotion, site location consulting, and business recruitment and attraction policy. More and more local authorities supplemented government employment promotion policy with autonomous projects to combat unemployment. Without calling in question the national responsibility of the Federal Employment Service and local agencies for employment, many local authorities decided, in keeping with the principle that "it is better to finance employment than unemployment," to adopt an active local employment policy at the interface between social and economic policy. "Employment aid" and secondary labour market instruments were the main tools used to cope with the consequences of permanent economic structural change and give people at least a prospect of reinsertion in the primary labour market through skills acquisition, placement, and secondary labour market employment. Since these are without doubt discretionary local government services, continuous and committed work was needed to overcome often considerable political resistance. Over almost two decades, a wide range of programmes and options thus developed which, building on the Employment Promotion Act (AFG), the Federal Social Assistance Act (BSHG), special programmes of the federal government and some state governments, and EU support facilities, have engaged local authorities in responsibility for employment and skills acquisition.

The wide variety of systems and tasks involved are evidenced by the German Association of Cities and Towns working group on employment promotion, which now assembles some 20 German municipalities to discuss experience with local employment and labour market policy and to elaborate best practice examples. Common standards in local employment and labour market policy have been sought; experience with and findings from concrete project work have been channelled into policy and legislation.


2. Mass Unemployment: A Major Societal Problem

Many years of persistently high unemployment levels signal the profound crisis the labour market is suffering. In early 2005, the five million mark was passed in Germany. Although this was caused primarily by inclusion of employable social assistance recipients in unemployment statistics pursuant to the Social Code (SGB) II, it has had an enormous political impact. The total number of jobseekers is much higher.

Structural change in labour markets
For many years now jobs have been lost in Germany owing to structural change and globalisation. In particular, the outsourcing of jobs to low-wage countries has long ceased to be limited to manufacturing. It now strongly affects services and even research and development. Since there is no large market for simple services, older and low skilled people and those with limited capabilities generally have no alternative to unemployment.

Mismatch between supply and demand
The low skilled and those with obsolescent qualifications are among the relative losers of a policy of progressive liberalisation in highly developed industrial countries. Especially in large, economically potent cities, there is a growing number of jobs that cannot be performed by indigenous labour. For instance, the comparatively positive data for the Munich region (unemployment rate 5.3 per cent in December 2004, 7 per cent in June 2005) hide contradictory trends. Growing segments like information and communication technologies, media, medical engineering, etc., generate a demand for labour that to some extent can be met only through immigration. On the other hand, the immigration balance is marked by great discrepancies in educational and skills levels between Germans and immigrants, making the permanent integration of immigrants into the primary labour market particularly difficult. Low educational participation by the second and third generations of "guest workers" who arrived in the 1960s poses a particular problem.

Erosion of the classical employment relationship
Another phenomenon in present-day working society is the increasing erosion of the so-called classical "typical employment relationship." It guaranteed social status and made occupational biographies calculable. The company and external vocational training system ("dual" vocational training), which until not so long ago guaranteed well-founded and viable training for broad sections of the population, can no longer be taken as a matter of course. At the same time, less protected, atypical forms of employment have arisen that do not allow people to earn a continuous, individual living nor to enjoy long-term career planning security. One particularly distressing manifestation, particularly affecting (and exploiting) young people, is years of unpaid work experience placements. In recent years, moreover, unemployment has reached population groups who had hitherto felt secure because of their higher qualifications and choice of "safe" occupations. This security is crumbling, unemployment, losing one's job has become a real threat for many. And this threatens the refinancing of social security systems.

Reorganising the welfare state
Social security systems are changing. They had hitherto provided a reliable framework, making the social security of the individual a fundamental principle even in the event of underemployment, unemployment, illness, and old-age. Now wages and salaries are falling, services being reduced. Social insurance contributions are increasing, and the rules about what can reasonably be expected of the unemployed are becoming more stringent, while the demands on services are increasing. The normative guiding principle is "activating" social and labour market policy in the pursuit of employability. The aim is to ensure or restore personal employability, so that earnings risks and life contingencies can be coped with individually. The provident state, compensating for social insecurity and establishing distributive equity, is being superseded by a policy of ensuring "basic facilities" and otherwise giving individuals opportunities they have to use on their own responsibility.


3. 2005 - Year of Change?


3.1 Legislation

With effect from 1 January 2005, the Fourth Act for Modern Services in the Labour Market ("Hartz IV") merged unemployment assistance and social assistance in the Social Code II (SGB II) to constitute a new basic benefit for jobseekers, the so-called "unemployment benefit II" Essentially, under the SGB II, the federal government pays for basic support and integration services for jobseekers, while local authorities pay for accommodation.

"One-stop services" for the (main) target group, the long-term unemployed, have been demanded for many years by local authorities, and are now in place. Federal tax funding is now also available for the target group of former social assistance recipients in addition to cost of living assistance in the form of integration payments. Whether the lawmakers' announcement that this would be accompanied by financial relief for local authorities will be realised remains to be seen.

The principle underlying the SGB II is "promote and demand." The long-term unemployed are offered a perspective in the labour market and in return they are expected to assume personal responsibility for finding work. The old "active" labour market policy, which has been successful in retraining, qualification, and job creation, is now supplemented by an approach that activates the people affected. But activating labour market policy, too, reaches its limits when the number of unemployed far exceeds the number of jobs available.


3.2 Implementation

Under the SGB II, the federal government has established local authorities as actors in employment policy, thus taking account of the fact that successful labour market policy needs the closeness of the local level to job opportunities and the unemployed.

There are essentially two organisational models for performing SGB II tasks: the option and the consortium. The "opting" local authority assumes full responsibility for SGB II services, but can procure the services of the agency. Local authorities that have formed a consortium (Arbeitsgemeinschaft/ARGE) with the agency for employment can "opt" for full responsibility after expiry of the agreement.

The consortium combines the social competence of the local authorities with the labour market policy competence of local agencies for employment. The harmonisation of different "corporate cultures" that this necessitates is a particular challenge: the tradition of a hierarchically structured, strictly centralised federal authority confronts administrative authorities answerable to local government.

The local agencies have been advised to enter into such consortia. Since consortium and the agency have basically the same support tools at their disposition and serve the same labour market, cooperation can be accompanied by (at best) fruitful competition. However, with their different clienteles, (unemployment benefit I and unemployment benefit II recipients) the two compete for the scarce jobs available in the primary labour market. The SGB II cannot solve the most serious problem, the lack of jobs. Creating additional jobs remains the task of business and industry. The public authorities are responsible for establishing the general setting for successful entrepreneurial activity. This includes business-friendly tax arrangements and an optimum transport infrastructure, promotion of the creative milieu, high investment in the scientific quality of vocational training, research and teaching at individual locations and throughout the country. Active local government employment and training policy, however necessary it remains, will be only one of many tiles in the mosaic.


4. Components of Future Local Labour Market and Employment Policy

Permanent structural change and the necessary adaptation of labour markets manifest themselves first of all at the local level: business failures, job cuts, dismissals, business start-ups and new recruitment are direct reactions in the labour market.

Flexible and rapid responses by all actors operating at the local level must accordingly be coordinated. Local authorities, local agencies for employment, business and industrial associations, as well as employees, social organisations, grass-roots initiatives, all must coordinate their activities and take the greatest possible account of the local situation. Although it has always been the goal of all local economic and employment policy to prevent unemployment and create jobs, the coordination and interlinkage of numerous new instruments offered by EU employment strategy, the "Hartz" reforms, SGB II and III instruments, and local authority approaches nevertheless present a new challenge. Those who interpret the SGB II as encouraging local authorities to withdraw from employment policy activities over and beyond collaboration in consortia, must be clearly contradicted. In view of the still catastrophic local government finances in Germany, it is understandable that politicians, particularly those with responsibility for financial affairs, find it tempting to limit engagement to consortia to save resources previously earmarked for local employment policy. This is mistaken for two reasons. First, the federal resources allocated to consortia for integration are neither assured in permanence nor are they much higher than before. Second, the structures that have developed and evolved, particularly in cities that have adopted an active labour market policy and which have made an important contribution to training and employment, depend on municipal funding. A radical cut would lead to the collapse of networks that have grown over many years, indeed decades, on which other economic policy measures also depend, like business start-up promotion, vocational training initiatives, educational policy, etc. In this way alone can the potential of local government policy and of all labour market actors maintain its value and continue to be exploited.

Reorientation remains necessary but needs to consider four priorities for future local employment policy.


4.1 Reducing Disparities

Local authorities must direct their attention towards target groups not catered for or only inadequately catered for by agencies on the basis of SGB III and consortia on the basis of SGB II. Opting local authorities have played a prominent role in this approach, which they now have to perform entirely in their own responsibility. Municipalities in which consortia have been set up now have greater responsibility for developing and providing supplementary measures in partnership with the relevant actors in the framework of local training and employment policy. Account needs to be taken of the growing differentiation in social problems in order to ensure equality of opportunity and social security for target groups that cannot be supported under SGB II and III.

The implementation of gender mainstreaming and analysis of the particular needs of women constitute major priorities for activating local labour market and employment policy.


4.2 Prevention

No local employment policy is in a position to solve all the problems that arise in the primary labour market with the means of a secondary labour market. But mitigating, counteractive, and preventive measures can be taken. Prevention, in particular, offers prospects and challenges. Under certain circumstances, for instance, people can be saved from "falling victim" to economic structural change. There are tools that must be maintained or developed to allow people to hold their own in training and labour markets. Elements like profiling (1) and case management (2) are hence crucial for every activating labour market policy. Providing in-depth individual counselling on vocational and further training should be one of the key fields and a major priority of activating local labour market policy.

Another preventive approach, which has been pursued in Munich for some years now, should also be intensified and developed. European employment projects attempt to ward off unemployment in advance of technological changes through ongoing employee training. This requires close cooperation with local firms and trade unions, industry associations, and chambers. Tailor-made solutions and models need to be developed and financed. Munich has gathered experience in this field particularly in projects with printing and media firms, which have been successfully implemented in the context of European employment projects.


4.3 Creating More Jobs

"Employment opportunities are to be created for employable persons in need of assistance who are unable to find work. Article 16 (3) of the SGB II refers above all to the creation of jobs remunerated by "compensation for additional expenditure" ("Mehraufwandsentschädigung/MAW"). Compared with other SGB II and III instruments, "MAW" employment plays a subordinate role, coming to bear primarily for so-called "intensive service clients."

Remuneration is not credited against unemployment benefit II. The aim is insertion into employment and consequent independence of transfer payments. The activities involved are "additional" and "non-profit" in nature and do not establish an employment relationship within the meaning of labour law. The duration of employment is basically for six months and may be extended for a further six months.

This is not really a new instrument. The Federal Social Assistance Act provided for something similar, so that in practice it can be applied in pursuit of the following goals:

  • integration into the primary labour market,
  • safeguarding employability,
  • meaningful activity for people who wish to work,
  • testing a person's willingness to work.

At the same time, a return is demanded for government transfer payments and the temptation of undeclared employment is reduced. The hopes set in this instrument are not uncontradictory. On the one hand, it is expected to help integrate the difficult target group of the long-term unemployed into the primary labour market. On the other hand, it should not displace regular employment. But the more distant an activity is from the market, the less of a chance it has of furthering labour market reintegration.

A balance needs to be found, though placement in private firms must on principle be excluded. In consequence, the only entities that could actually assume responsibility for a "MAW" labour market are municipalities, municipal enterprises, welfare organisations, the public service sector and welfare enterprises or employment projects. Welfare enterprises, in particular, may require financial resources that cannot be allocated under the SGB II, making supplementary local authority funding necessary.

"MAW" employment is a necessary but not sufficient attempt to achieve a balance in local labour markets. It will in future be the most frequently used instrument in public employment promotion. The possibilities and limits of MAW employment as an activating labour market tool must, however, be more closely examined in the coming period.

Although job creation schemes are being partly superseded by MAW employment, they remain an important activating instrument for certain target groups among "intensive service clients," since in principle and unlike MAW jobs, they establish contributory employment.


4.4 Job-Generating Structural Policy

Market economy competition and the international division of labour cause continuous changes in economic structures. Structural change is a permanent phenomenon and the sign of a living market economy. Successful local structural policy therefore presupposes the dovetailing of economic development promotion and employment promotion, and requires an integrated approach like that adopted by the joint federal and state government programme "Districts with Special Development Needs - the Socially Integrative City."

The promotion and support of business start-ups is a classical economic development promotion measure that allows job creation to be actively influenced. Well-founded counselling is a precondition for the future success of the new enterprises. Munich cooperates closely with the various chambers to cover the counselling needs of different target groups. It is hoped to prevent financial bottlenecks for SMEs through deficiency guarantees for small borrowers issued in cooperation with local banks. Providing premises in technology and business centres is another component in the business start-up programme.

Municipal undertakings are a further element in safeguarding employment. They deliver services for the urban population and are stable partners in general interest services and retirement planning. Such municipal undertakings also drive growth in regional employment. In Munich they include Munich Airport, Munich Trade Fair, and the public utilities. Appropriate local structural policy not only safeguards the quality of services but also ensures influence in the generation of stable employment relationships.


5. The Example of Munich


5.1 Arbeitsgemeinschaft für Beschäftigung München GmbH

It was decided at a very early date to set up the Munich Consortium for Employment Limited. It drew on almost 20 years of close cooperation between the municipality and the local agency for employment, which had anticipated essential elements of "Hartz IV." Over and above the Munich employment and training programme - including employment promotion initiatives, structural change association, special youth programme, and European projects - measures for helping people into work have been steadily developed in the framework of social assistance and organised on a decentralised basis in social service centres. Substantial local authority funding, at the latest figure € 35 million, had supplemented government resources and had permitted the development of a networking structure embracing welfare organisations and projects. Cooperation between the Munich municipality and the Munich agency for employment in the Beschäftigung München GmbH consortium is now grounded in a formal company agreement and a substantive cooperation agreement.

An advisory board has been appointed to involve all relevant actors in making and monitoring employment policy. The board includes representatives of employers (e.g., local chambers) and labour (trade unions), as well as representatives of welfare organisations and supporting groups. The municipal political level is represented on the board by members of the city council. The board is composed on a basis of parity by representatives of the municipality and the local agency for employment, and decides the strategic guidelines for the consortium.

Its job is to develop and annually update a holistic employment programme for Munich adapted to local conditions on the basis of funds provided by the federal government and the municipality. The aim of the consortium is to obtain the greatest possible integration, especially into the primary labour market, taking full account of the needs of different labour market target groups. The consortium works together with private charitable institutions and employment projects to combat long-term unemployment in Munich, and gives major priority to helping youth and young adults into employment, and to acquire vocational training and skills.

In order to maintain the quality and diversity of measures and projects and to ensure that the "promotion" of clients within the meaning of SGB II continues to be guided by long tried and tested standards, it has been contractually agreed that the Munich municipality may, in consultation with the consortium, develop employment programmes using additional resources to supplement consortium integration instruments.


5.2 The Munich Employment and Qualification Programme (MBQ)

The increase in long-term unemployment shows that a section of the labour market always requires greater attention from local authorities. They are therefore called upon to make an additional effort. Since the early 1980s, Munich has sought to complement the traditional tools of economic policy by an active labour market policy.

This has meant both serving the primary labour market by zoning industrial and commercial land and local economic development promotion, and doing something for problem groups not reached by traditional economic policy. This approach has proved its worth to this day. In any society there will always be people who cannot be accommodated in the primary labour market. Since financing this group remains a public task, it makes better sense than merely financing unemployment to develop useful areas of activity for them, to place them in skilled activities, and thus to facilitate their re-integration into working life. Local employment policy is not a luxury but a necessary corrective, albeit one that constantly raises the question of costs and benefits.

The main components of the Employment and Qualification Programme in 2005 are the "Secondary Labour Market" programme with the emphasis on social enterprises/employment promotion initiative, "Support for Structural Change," and the "Munich Special Programme against Deficient Youth Vocational Training and Unemployment." Cross-sectional tasks in all programme fields are the promotion of equal opportunities for women and men in the labour market and the integration of people with an immigrant background. Embedding local government activities in European employment strategy is also of great strategic importance.

Employment promotion initiatives are indispensable
Employment promotion initiatives in Munich include 33 projects and represent a commitment to a publicly supported secondary labour market. This local authority programme complements the activities of the Munich Employment Consortium through a network of social enterprises and job creation companies like the Freimanner Werkstatt gGmbH set up in 1992, which provides employment and training for difficult to place target groups. Such initiatives are necessary as bridges out of unemployment into the primary labour market and as "working worlds" for people who have to be re-integrated into the primary labour market.

A person's life and occupational career seldom steer a straight course. Moreover, target groups often suffer from a combination of disadvantages. Social enterprises, some with considerable market orientation, not only offer many people access to employment and skills acquisition, they also make an important contribution to the social, cultural, and ecological infrastructure of the city. A publicly supported employment sector is thus also a societal and local government task.

Support for structural change
This is the innovation segment of the Munich employment and qualification programme. Within the given financial limits, people and institutions are encouraged to use their creativity to facilitate and accelerate processes of adaptation in structural change. The following goals are pursued:

  • the generation of jobs, above all by supporting business start-ups;
  • training of employees and the unemployed through new, target group-specific "life-long learning" approaches;
  • promoting growth in employment through cooperation between small and medium-sized enterprises as motors for employment development;
  • identifying industries with growth potential in Munich, facilitating the transition from shrinking sectors to growing ones.

In Munich this is implemented in a range of projects and with the aid of Verbund Strukturwandel GmbH (Structural Change Association Limited). The counselling and training firm was founded in 1994 by the Munich municipality. It offers counselling, services, and qualification projects in support of structural change in Munich companies and industries. The aim is to facilitate the transition to employment at an early stage and through preventive measures for the jobless or people threatened by unemployment, and to reduce the risk of losing one's job through timely further training during employment. The European Social Fund (ESF) provides support.

By establishing cooperatives like "Hausgemacht eG" or "Made in Hasenbergl e G," social economy enterprises are actively supported and their role in local employment development reinforced.

Annual employment conferences, prepared and organised by the Department for Labour and Economic Development and presided over by the mayor of Munich, provide a permanent communication platform. They promote the networking of local labour market actors.

Special Programme against Deficient Youth Vocational Training and Unemployment.
Although, compared with elsewhere, youth unemployment in the Munich economic region is relatively low and the supply-demand ratio for apprenticeships is still favourable, there are nonetheless more and more young people unable to cope with the transition from school to vocational training or employment without help. In many cases, the lack of school-leaving qualifications and linguistic competence, as well as deficient social behaviour prevent sustainable occupational integration.

The Munich "Special Programme against Deficient Youth Vocational Training and Unemployment" concentrates on vocational training, employment, and placement.

The MOVA project (mobilisation for vocational training in immigrant firms) also encourages immigrant business people to offer vocational training in their enterprises, and advises and places young people with an immigrant background.

The annual Erasmus Grasser Prize for engagement in vocational training also encourages firms to engage in training. In collaboration with various types of school, the "Youth Exchange" project provides timely information about job applications, vocational training possibilities, work experience placements, etc. In the working group "Youth, Education, Occupation" all actors in the Munich vocational training market collaborate on improving training structures and providing sufficient training positions.

Advancement of women and gender mainstreaming
The promotion of equal opportunities for women and men in the working world is a major pillar of local employment policy. As a cross-sectional task, equality of opportunity is an explicit responsibility of the Department for Labour and Economic Development. It addresses the gender mainstreaming requirement that, as a horizontal objective bridging all policy areas, has been primary EU law since the Treaty of Amsterdam in 1997. All projects supported by the department, not only "women's projects," are committed to implementing the "equal opportunities" strategy. To eliminate the gender-specific disadvantagement of women in all phases of life is a pivotal task pursued by numerous projects and measures like "Girl's Day," cross-mentoring programmes,(3) "Girls and Technology" (in collaboration with Munich Technical University) etc.

The diversity approach no longer sees dissimilarity and difference as disadvantages but as a reservoir of new potentials, talents, and gifts.

Local government and European employment policy
At the European level, local authorities are playing an increasingly important role as partners in Europe-wide policy. In implementing the European directive for more employment, they are not only partners or mediators in local alliances for work but also contribute to shaping labour market policy and hence to easing the market through their own measures for promoting employment and supporting European programmes.

The local labour market and employment policy in Munich is in harmony with EU employment policy guidelines. The aim is to achieve full employment, increase job quality and productivity, strengthen social cohesion and social integration. The Munich employment and qualification programme considers itself the local agent of EU employment strategy. The department also participates as applicant and cooperation partner in almost all major European promotion programmes (e.g., ADAPT, EQUAL, INTERACT, INTERREG), also providing cofinancing. Exchanges with other European project partners bring new ideas and experience, while offering standards for assessing the quality of Munich programmes.

The municipality and its citizens benefit greatly.

  • For example, implementation of the EU programme EQUAL with its 15 subprojects has provided wide-ranging experience with establishing and coordinating development partnerships and integrating strategic partners.
  • Integrated approaches foster the development of private-public partnership models.
  • Best practice examples adapt new methods and forms of learning, and give substantive impetus to local employment and qualification policy.

6. Conclusion

In 2005, some may have nurtured the deceptive hope that Hartz IV would largely exempt local authorities from responsibility for labour market and employment policy. But the right to work addresses all levels of government. And every local authority that has recognised that social peace and the structures necessary to achieve it are among the key factors for the success of a business and industrial location will accept this commitment in full recognition of its own interests.



(1) Skills assessment tests. (back)

(2) Case management is a procedure in which the participant/client is the focus of attention. The quality of service is to be improved by taking an overall perspective and using all the possibilities of all institutions. (back)

(3) Cross mentoring programmes provide mentors from other firms for young female executives for the period of a year. They hold regular discussions with the aim of supporting professional and personal development, developing leadership qualities, and qualifying the person for higher executive positions. (back)

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