July/August 2003 COMPACT CONSIDERING THE FUTURE OF LABOR Courage to Reform! Renowned Economists Appeal to German Political Decision Makers On an IZA initiative 250 renowned, mainly German The willingness to support change is visible proved employment perspectives for all disad- or German-based economists strongly appealed to everywhere in German society. However, mar- vantaged groups in the German labor market. political decision makers and the public to show the shaling the forces of reform and pushing the courage for extensive labor market reforms. Since the overdue modernization through against the Restore Intergenerational Fairness end of May 2003, a total of 300 economists have resistance of obstinate critics requires politi- joined this initiative. The following is an English cal leadership. The guiding idea behind a national pension translation of the appeal: system ought to be the concept of intergen- If our country firmly and irreversibly sets its erational fairness. Abolishing early retirement Germany is at a crossroads. A dramatically sights on the necessary reforms, it will be pos- incentives and raising the retirement age high level of unemployment and the financial sible to return to growth and full employ- cannot substitute for a sweeping reform such crisis of our social system call for a funda- ment, and to render our social security sys- as the expansion of funded systems in favor mental reshaping of economic, labor market tems sustainable in the long run. of pay-as-you-go schemes. Nonetheless, these and social policy. Only then can societal and are necessary steps to secure the long-term economic challenges arising from technologi- Removing Disincentives in the Labor sustainability of our social security systems cal progress, globalization and demographic Market and to relieve future generations. They are es- change be tackled. sential in the light of profound demographic The planned limitation of the maximum un- changes that render the experience and pro- employment benefit duration, the merging of Now is the time for our politicians to finally ductivity of the elderly ever more important. unemployment and social welfare assistance As a supplement, more flexible payment rise to the occasion and prove their ability to on the level of the latter, and a reduction of implement substantial reforms. Further wa- schemes are warranted in order to counter transfer payments in case of refusal to accept vering or concession-making to placate the entrepreneurial risks that arise from hiring reasonable employment are preconditions to vested interests would merely drive Germany elderly workers. deeper into the economic doldrums. If we fail make low-paid jobs more attractive and to ren- to take decisive action now, we will risk for- der employment financially worthwhile for the Breaking Monopolies in the Health Sector ever falling behind in the process of adapting unemployed. The aim is to augment the in- come of the unemployed through gainful em- In order to gain control over the rampant cost to new economic realities – a process that inflation in the health sector, enhanced com- other countries have started a long time ago. ployment thus reinvigorating a dried-up seg- ment of the labor market. Reform of lay-off reg- petition between health insurance providers ulations plays its part in diminishing hiring re- will be crucial. While this would reduce costs The implementation of reforms would also on the supply side, patients will also need to straints on employers. It is a misperception serve the notion of social justice. Those who are bear a larger share of treatment costs. Secure that the socially disadvantaged would be the playing for time, or obstructing necessary funding for the public health insurance will change, are impeding the return of the unem- ones to suffer from these changes. A glance also require the separation of health insur- ployed to the labor market, which may eventu- across our national borders proves that high ance contributions from working income, or a ally cause the collapse of our social safety net. unemployment among the elderly and the low- broader pool of contributors. Further mea- Most affected would be those who depend on skilled does not follow any law of nature but is sures include cost-reducing mergers among the solidarity of society. Continuing a policy of an effect of a counterproductive incentive health insurance providers and the abolition indecisiveness would also imperil the future structure. These disincentives need to be abol- of the contracting monopoly of medical asso- prospects of generations to come. ished in order to provide substantially im- ciations. With the next increase in health in- In This Issue Courage to Reform! 1 Conference: “The Phillips Curve Revisited” 9 Swiss “Caseworker” System 4 Obituary on Mark C. Berger | New IZA Books 10 IZA Prize 2003 5 Short Reports 11 Measures to Lower Welfare Use in the US 6 IZA Tower Talk 7 New IZA Discussion Papers | Guest Researchers 13 Conference: “The Economics of Time Use” 8 Opinion 14 2 IZA COMPACT July/August 2003 surance premiums already looming, we must ing structural reforms and macroeconomic in the right direction, the consequences will act now to reform the system. stimulus can facilitate socio-political modern- be grave. Nor must the reform proposals fall ization efforts. Increased investments in infra- victim to political quarreling over which polit- Regulating Immigration Based on structure and human capital formation are ical party should be at the helm of the reform Economic Needs therefore paramount. By reducing consump- movement in Germany. tive public expenditures and scaling back sub- The proposed immigration law for Germany sidies, resources can be freed up to give fede- became a victim of partisan politics. Success- The signatories to this appeal urge the politi- ral budget planners more room to maneuver. fully passing a revised version will be essential. cal decision makers as well as employer asso- A path of temporarily accumulating addition- The necessary compromise on its contents ciations, trade unions, and all other elements al debt seems warranted with regard to the ought to establish an immigration strategy for of society not to jeopardize the new courage overall economic outlook as long as (1) the Germany that is more clearly founded on eco- to reform by short-sighted partisan politics or automatic stabilizers are allowed to function, nomic interests. From a demographic and vested interests. The reform concepts of the (2) it does not result in a new federal program economic viewpoint, the country needs an in- parliamentary opposition are in many re- to stimulate the economy, and (3) the efforts strument that allows for a selection of desper- spects identical with the “Agenda 2010”. A at balancing the federal budget over the medi- ately needed immigrants while at the same broad majority for the reform proposals of um term via spending cuts and subsidy reduc- time ensuring flexibility with regard to overall the German government is discernable. Now tions continue. immigration numbers. more than ever, those in power must act re- The intended economic, labor market and so- sponsibly. There is no more room for tactical Creating Macroeconomic Backup cial policy adjustments of the German govern- maneuvering in both chambers of parliament, The implementation of structural reforms in ment signify a change of course towards en- which would inevitably lead to further set- the midst of an economic downturn is no easy hanced labor market efficiency and more in- backs in the process of modernization in Ger- task. Additional macroeconomic stimulus will dividual decision-making autonomy. If there is many. Nothing less than the future prospects be crucial to cushion short-term adjustment too much hesitation in implementing the of this nation will depend on the successful difficulties. A two-pronged approach combin- “Agenda 2010”, which is certainly a first step outcome of the current reform process. Klaus F. Zimmermann Charles Blankart Friedrich Breyer Kai Konrad Meinhard Miegel Renate Ohr Initiator: haus (University of Karlsruhe) Cologne) Prof. Dr. Günter But- Dr. Hans-Friedrich Eckey (University of Stuttgart) Prof. Dr. Harhoff, Ph.D. (University of Prof Dr. Klaus F. Zimmer- Prof. Dr. Helmut Bester (Free tler (University of Erlangen-Nürn- (University of Kassel) Prof. Dr. Rainer Fremdling (University of Munich) Prof. Dr. Andreas mann (Director Institute for the University of Berlin) Prof. Dr. berg) Prof. Dr. Rolf Caesar Jürgen Eichberger (University of Groningen) Prof. Dr. Johannes Haufler (University of Munich) Study of Labor/IZA Bonn, Presi- Jörg Beutel (University of Ap- (University of Hohenheim) Prof. Heidelberg) Prof. Dr. Norbert Frerich (University of Bonn) Dr. Prof. Dr. Siegfried Heiler dent German Institute for Eco- plied Sciences Konstanz) Prof. Dr. Dieter Cansier (University Eickhoff (University of Potsdam) Guido Friebel (University of (University of Konstanz) Prof. nomic Research/DIW Berlin, Uni- Dr. Charles Blankart (Hum- of Tübingen) Prof. Dr. Uwe Prof. Dr. Roland Eisen (Uni- Toulouse) Prof. Dr. Ralph Dr. Hans-Rimbert Hemmer versity of Bonn, Free University of boldt-University Berlin) Prof. Dr. Cantner (University of Jena) versity of Frankfurt/Main) Prof. Friedmann (Saarland University, (University of Giessen) Prof. Dr. Berlin) Jürgen Bloech (University of Prof. Dr. Volker Caspari Dr. Gunther Engelhardt (Uni- Saarbrücken) Prof. Dr. Michael Klaus-Dirk Henke (Berlin Uni- Göttingen) Prof. Dr. Gerold (Darmstadt University of Techno- versity of Hamburg) Prof. Dr. Fritsch (Freiberg University of versity of Technology) Prof. Dr. Joint Signatories: Blümle (University of Freiburg) logy) Prof. Irwin Collier, Ph.D. Frank Englmann (University of Mining and Technology) Prof. Roland Herrmann (University Prof. Dr. Werner Abelshauser Prof. Dr. Ulrich Blum (Dres- (Free University of Berlin) Prof. Stuttgart) Prof. Dr. Horst En- Dr. Susanne Fuchs-Seliger of Giessen) Prof. Dr. Carsten (University of Bielefeld) Prof. Dr. den University of Technology) Dr. Klaus Conrad (University of torf (Darmstadt University of (University of Karlsruhe) Prof. Herrmann-Pillath (University of Michael Adams (University of Prof.