Compact Considering the Future of Labor

Home , University of Hagen, University of Kassel, Wilhelm Krelle, Wulf

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 income 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 mediately 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. Dieter Bögenhold, Mannheim) Prof. Dr. Roland Technology ) Prof. Dr. Georg Dr. Michael Funke (University Witten/Herdecke) Prof. Dr. Hel- Hamburg) Prof. Dr. Horst Al- Ph.D. (Saarland University, Saar- Conrady (University of Applied Erdmann (Berlin University of of Hamburg) Prof. Dr. Günter mut Hesse (former President bach (Social Science Research brücken) Prof. Dr. Dieter Sciences Worms) Prof. Dr. Hel- Technology) Prof. Dr. Mathias Gabisch (University of Göttin- Landeszentralbank Bremen/Nie- Center Berlin/WZB) Prof. Dr. Bökemann (Vienna University of mut Cox (University of Duisburg- Erlei (Clausthal University of gen) Prof. Dr. Simon Gächter dersachsen/Sachsen-Anhalt, Han- Sönke Albers (University of Kiel) Technology ) Prof. Dr. Friedel Essen) Prof. Dr. Manfred Technology) Prof. Dr. Rolf (University of St. Gallen) Prof. nover) Prof. Dr. Klaus Hesse Prof. Dr. Gerhard Arminger Bolle (European University Viad- Deistler (Vienna University of Eschenburg (University of Mün- Dr. Wulf Gaertner (University (University of Kiel) Prof. Dr. (University of Wuppertal) Prof. rina, Frankfurt/Oder) Prof. Dr. Technology) Dr. Kurt Demmer ster) Prof. Dr. Ralf Ewert (Uni- of Osnabrück) Prof. Dr. Heinz Werner Hildenbrand (Univer- Dr. Uschi Backes-Gellner Wilhelm Brandes (University of (Chief Economist IKB Deutsche versity of Frankfurt/Main) Dr. Galler (University of Halle-Wit- sity of Bonn) Prof. Dr. Lutz (University of Zürich) Prof. Dr. Göttingen) Prof. Dr. Michael Industriebank AG, Düsseldorf) Armin Falk (University of tenberg) Prof. Dr. Oskar Gans Hoffmann (Director East-Euro- Klaus Backhaus (University of Braulke (University of Os- Prof. Dominique Demougin, Zürich) Prof. Dr. Ulrich Fehl (University of Heidelberg) Prof. pean Institute, Munich) Prof. Dr. Münster) Prof. Dr. Wolfgang nabrück) Prof. Dr. Friedrich Ph.D. (Humboldt-University Ber- (University of Marburg) Prof. Dr. Dr. Thomas Gehrig (University Stefan Homburg (University of Ballwieser (University of Mu- Breyer (University of Konstanz) lin) Prof. Dr. Dietrich Dickert- Stefan Felder (University of of Freiburg) Prof. Dr. Knut Hannover) Prof. Dr. Lothar nich) Dr. Thomas Bauer (Insti- Prof. Dr. Johannes Bröcker mann (University of Trier) Prof. Magdeburg) Joachim Fels Gerlach (University of Hannover) Hübl (University of Hannover) tute for the Study of Labor/IZA, (University of Kiel) Prof. Dr. Dr. Günter Dlugos (Free Uni- (Managing Director/Co-Head of Daniel Gros, Ph.D. (Director Prof. Dr. Olaf Hübler (Univer- Bonn) Prof. Dr. Ansgar Belke Felix Büchel (Max Planck Insti- versity of Berlin) Prof. Dr. European Economics, Morgan Centre for European Policy Stud- sity of Hannover) Dr. Martin (University of Hohenheim) Prof. tute for Human Resources, Berlin) Hilmar Drygas (University of Stanley, London) Prof. Dr. Silvia ies, Brussels) Prof. Dr. Jo- Hüfner (Chief Economist Hy- Dr. Dieter Bender (Ruhr-Uni- Prof. Dr. Dietrich Budäus Kassel) Christian Dustmann, Föhr (University of Leipzig) Prof. hannes Hackmann (University poVereinsbank, Munich) Prof. versity of Bochum) Prof. Dr. (Hamburg University of Economics Ph.D. (University College, Lon- Dr. Gernold Frank (University of the Federal Armed Forces Ham- Dr. Reinhard Hujer (University Volker Bergen (University of and Politics) Prof. Dr. Jörg don) Prof. Dr. Harald Dyck- of Applied Sciences Berlin/ burg) Prof. Dr. Gerd Hansen of Frankfurt/Main) Prof. Dr. Göttingen) Prof. Dr. Peter Budde (University of Bonn) hoff (Aachen University of Tech- FHTW) Prof. Dr. Günter (University of Kiel) Prof. Dr. Gerhard Illing (University of Bernholz (University of Basel) Prof. Dr. Helmut Bujard (Uni- nology) Prof. Dr. Udo Ebert Franke (University of Konstanz) Heinz-Dieter Hardes (Universi- Munich) Prof. Dr. Klaus-Die- Prof. Dr. Siegfried Berning- versity of Applied Sciences (University of Oldenburg) Prof. Prof. Dr. Siegfried Franke ty of Trier) Prof. Dietmar ter Jacob (University of Applied IZA COMPACT July/August 2003 3

Sciences Dortmund) Prof. Dr. Oliver Landmann (University of terdam) Prof. Dr. Wolfgang Schefold (University of Frank- ics“, Kiel Institute for World Eco- versity of Leipzig) Prof. Dr. Klaus Jaeger (Free University of Freiburg) Prof. Dr. Michael Patzig (University of Applied furt/Main) Prof. Dr. Ulrich nomics/IfW, University of Kiel) Hans-Jürgen Vosgerau (Uni- Berlin) Prof. Dr. Hans-Joa- Lederer (University of Applied Sciences/Hochschule Magdeburg- Schempp (University of Applied Prof. Dr. Manfred Sommer versity of Konstanz) Prof. Dr. chim Jarchow (University of Göt- Sciences Furtwangen) Prof. Stendal) Dr. Burkhard Pedell Sciences Stralsund) Prof. Dr. (Hamburg University of Economics Hans-Jürgen Wagener (Euro- tingen) Prof. Dr. Alexander Hartmut Lehmann, Ph.D. (University of Munich) Prof. Dr. Wolfgang Scherf (University of and Politics) Prof. Dr. Heinz- pean University Viadrina, Frank- Karmann (Dresden University of (Heriot-Watt University, Edin- Franz Peren (University of Ap- Giessen) Prof. Dr. Hermann Peter Spahn (University of Ho- furt/Oder) Prof. Dr. Gerhard Technology) Prof. Dr. Karl- burgh) Prof. Dr. Wolfgang plied Sciences Bonn-Rhein-Sieg) Scherl (University of Erlangen- henheim) Prof. Dr. Reinhard Wagenhals (University of Ho- Heinz Ketterer (University of Leininger (University of Dort- Prof. Dr. Hans-Georg Pe- Nürnberg) Prof. Dr. Ulf Spree (University of Munich) henheim) Prof. Dr. Franz Karlsruhe) Prof. Dr. Christian mund) Prof. Dr. Robert Leu tersen (University of Potsdam) Schiller (University of Bern) Prof. Dr. Dirk Standop (Uni- Wagner (University of Tübingen) Keuschnigg (University of St. (University of Bern) Prof. Dr. Prof. Dr. Rüdiger Pethig (Uni- Prof. Dr. Bernd Schips (Swiss versity of Osnabrück) Prof. Dr. Prof. Dr. Helmut Wagner Gallen) Prof. Dr. Gebhard Klaus Locher (University of Ap- versity of Siegen) Prof. Dr. An- Federal Institute of Technology Joachim Starbatty (University (FernUniversität/University of Kirchgässner (University of St. plied Sciences Kehl) Prof. Dr. dreas Pfingsten (University of Zurich) Prof. Karl Schlag, of Tübingen; Chair of „Aktionsge- Hagen) Prof. Dr. Joachim Gallen) Dr. Roland Kirstein Horst Löchel (University of Ap- Münster) Prof. Dr. Arnold Ph.D. (European University Insti- meinschaft Soziale Marktwirt- Wagner (University of Lüneburg) (Saarland University, Saarbrükken) plied Sciences/Business School of Picot (University of Munich) tute, Florence) Prof. Dr. Otto schaft“) Prof. Dr. Werner Ste- Prof. Dr. Johann Walter (Uni- Prof. Dr. Klaus-Peter Kistner Finance and Management, Frank- Prof. Dr. Toni Pierenkemper Schlecht (Honorary Chairman den (Free University Berlin) Prof. versity of Applied Sciences (University of Bielefeld) Prof. furt/Main) Prof. Dr. Hartmut (University of Cologne) Prof. Ludwig Erhard Foundation, Bonn) Dr. Richard Stehle (Humboldt- Gelsenkirchen) Prof. Dr. Nor- Stephan Klasen, Ph.D. (Uni- Löffler (Pforzheim University of Jörn-Steffen Pischke, Ph.D. Prof. Dr. Michael Schmid University Berlin) Prof. Dr. bert Walter (Chief Economist versity of Munich) Prof. Dr. Ger- Applied Sciences) Prof. Dr. Karl (London School of Economics) (University of Bamberg) Prof. Otto Steiger (University of Bre- Deutsche Bank, Frankfurt/Main) hard Kleinhenz (University of Lohmann (Freiberg University of Prof. Dr. Rüdiger Pohl (Presi- Dr. Thomas Schmid-Schön- men) Prof. Dr. Viktor Steiner Prof. Dr. Uwe Walz (University Passau) Prof. Dr. Paul Klem- Mining and Technology) Prof. dent Halle Institute for Economic bein (University of Applied (German Institute for Economic of Frankfurt/Main) Prof. Dr. Al- mer (Ruhr-University of Bochum; Dr. Helmut Lütkepohl (Euro- Research/IWH, University of Hal- Sciences/Fachhochschule Lausitz, Research/DIW Berlin; Free Uni- fons Weichenrieder (University former President Rhine-Westpha- pean University Institute, Florence) le-Wittenberg) Prof. Dr. Günter Senftenberg) Prof. Dr. Klaus versity of Berlin) Prof. Dr. Al- of Frankfurt/Main) Prof. Dr. lia Institute for Economic Re- Prof. Dr. Thomas Lux (Univer- Poser (Darmstadt University of Schmidt (University of Munich) fred Steinherr (Chief Economist Carl Christian von Weizsäcker search, Essen/RWI) Prof. Dr. sity of Kiel) Prof. Dr. Wolfgang Technology) Prof. Dr. Heinz Prof. Dr. Claus Schnabel (Uni- European Investment Bank, Lu- (University of Cologne) Prof. Dr. Henning Klodt (Head of De- Maennig (University of Ham- Preusse (University of Tübingen) versity of Erlangen-Nürnberg) xemburg) Prof. Dr. Gunter Paul Welfens (University of partment “Growth, Structural burg) Prof. Dr. Dalia Marin Prof. Dr. Erich Priewasser Prof. Dr. Reinhold Schnabel Steinmann (University of Halle- Wuppertal; President European Change, and the International Di- (University of Munich) Prof. Dr. (University of Marburg) Prof. (University of Essen) Prof. Dr. Wittenberg) Prof. Dr. Volker Institute for International Econom- vision of Labor“, Kiel Institute for Franz Marx (University of Bre- Sven Rady, Ph.D. (University of Dieter Schneider (Ruhr-Univer- Steinmetz (Saarland University, ic Relations/EIIW) Prof. Dr. World Economics/IfW, University men) Dr. Jürgen Meckl (Univer- Munich) Prof. Dr. Bernd- sity of Bochum) Dr. Hilmar Saarbrücken) Prof. Dr. Tho- Dietmar Wellisch (University of of Kiel) Prof. Dr. Günter sity of Konstanz) Prof. Dr. Thomas Ramb (University of Schneider (Director of Labor Pol- mas Straubhaar (President Magdeburg) Prof. Dr. Heinz Knieps (University of Freiburg) Georg Meran (Berlin University Siegen) Ulrich Ramm (Chief icy, Institute for the Study of Hamburg Institute of International Welsch (University of Oldenburg) Prof. Dr. Ulrich Koester (Uni- of Technology) Prof. Dr. Rainer Economist Commerzbank, Frank- Labor/IZA, Bonn) Prof. Dr. Economics/HWWA; University of Prof. Dr. Alois Wenig (Univer- versity of Kiel) Prof. John Kom- Metz (Central Archive for Empir- furt/Main) Prof. Dr. Michael Friedrich Schneider (University Hamburg) Prof. Dr. Hannes sity of Halle-Wittenberg) Prof. los, Ph.D. (University of Mu- ical Social Reseasrch, University of Rauscher (University of Rostock) of Linz) Prof. Dr. Monika Streim (Ruhr-University of Dr. Heinz-Dieter Wenzel nich) Prof. Dr. Manfred Cologne) Prof. Dr. Bernd Prof. Stefan Reichelstein, Schnitzer (University of Munich) Bochum) Prof. Dr. Manfred (University of Bamberg) Prof. Königstein (University of Erfurt) Meyer (University of Osnabrück) Ph.D. (Graduate School of Busi- Prof. Dr. Detlef Schoder (Otto Streit (Max Planck Institute for Dr. Bengt-Arne Wickström Prof. Dr. Kai Konrad (Social Prof. Dr. Wolfgang Meyer ness, Stanford University) Prof. Beisheim Graduate School of Research into Economic Systems, (Humboldt-University Berlin; Vice Science Research Center Berlin/ (University of Hannover) Prof. Dr. Franco Reither (University Management, Vallendar) Prof. Jena) Prof. Dr. Ulrich van Sun- President German Institute for WZB; Free University of Berlin) Dr. Jochen Michaelis (Universi- of the Armed Forces Hamburg) Dr. Ronnie Schöb (University of tum (University of Münster) Economic Research/DIW Berlin) Prof. Dr. Hugo Kossbiel (Uni- ty of Kassel) Prof. Dr. Mein- Prof. Dr. Till Requate (Univer- Magdedurg) Prof. Dr. Klaus Prof. Dr. Norbert Szyperski Prof. Dr. Susanne Wied- versity of Frankfurt) Prof. Dr. hard Miegel (Director Bonn In- sity of Kiel) Prof. Dr. Rudolf Schredelseker (University of (University of Cologne) Prof. Dr. Nebbeling (University of Colog- Matthias Kräkel (University of stitute for Economic and Social Re- Richter (Saarland University, Innsbruck) Prof. Dr. Georg Ernst-Ludwig von Thadden ne) Prof. Dr. Josef Wieland Bonn) Prof. Dr. Walter search/IWG Bonn) Prof. Dr. Saarbrücken) Prof. Dr. Wol- Schreyögg (Free University of (University of Lausanne) Prof. (University of Applied Sciences Krämer (University of Dort- Otto Moeschlin (FernUniver- fram Richter (University of Dort- Berlin) Prof. Dr. Alfred Dr. Erik Theissen (University of Konstanz) Prof. Dr. Volker mund) Prof. Dr. Kornelius sität/University of Hagen) Prof. mund) Prof. Regina Riphahn, Schüller (University of Marburg) Bonn) Prof. Dr. Theresia Wieland (University of Frank- Kraft (University of Dortmund) Dr. Josef Molsberger (Univer- Ph.D. (University of Basel) Prof. Prof. Dr. J. Matthias Graf von Theurl (University of Münster) furt/Main) Prof. Dr. Harald Prof. Dr. Jan Krahnen (Direc- sity of Tübingen) Prof. Dr. Karl Lars-Hendrik Röller, Ph.D. der Schulenburg (University of Prof. Dr. Norbert Thom (Uni- Wiese (University of Leipzig) tor Center for Financial Studies, Mosler (University of Cologne) (Social Science Research Center Hannover) Prof. Dr. Urs versity of Bern) Prof. Dr. Man- Prof. Dr. Olaf Winkelhake University of Frankfurt/Main) Prof. Dr. Klaus Müller (Centre Berlin/WZB; Humboldt-Universi- Schweizer (University of Bonn) fred Tietzel (University of Duis- (University of Applied Sciences Prof. Dr. Wilhelm Krelle (Uni- for Agricultural Landscape and ty Berlin) Prof. Dr. Ralph Prof. Dr. Gerhard Schwödi- burg-Essen) Prof. Dr. Georg Koblenz/RheinAhrCampus Rema- versity of Bonn) Prof. Dr. Gerd Land Use Research/ZALF, Mün- Rotte (University of Techno- auer (University of Magdeburg) Tillmann (University of Mainz) gen) Prof. Dr. Helmut Winter Krol (University of Münster) cheberg) Prof. Dr. Heiner logy/RWTH Aachen) Prof. Dr. Prof. Dr. Franz Seitz (Universi- Prof. Dr. Dieter Timmer- (Director University of Cooperative Prof. Dr. Stefan Kronenber- Müller-Merbach (University of Horst Rottmann (University of ty of Applied Sciences Amberg- mann (Rector University of Biele- Education Ravensburg) Prof. Dr. ger (Ludwigshafen University of Kaiserslautern) Prof. Dr. Uwe Applied Sciences Amberg-Wei- Weiden) Prof. Dr. Helmut feld) Prof. Dr. Thusnelda Eberhard Witte (University of Applied Sciences ) Prof. Dr. Bar- Mummert (Nuremberg Universi- den) Prof. Dr. Karlheinz Ruck- Seitz (European University Viadri- Tivig (University of Rostock) Munich) Prof. Dr. Hans-Wer- bara Krug (University of Rotter- ty of Applied Sciences) Prof. Dr. riegel (Nuremberg University of na, Frankfurt/Oder) Prof. Dr. Prof. Dr. Richard Tol (Univer- ner Wohltmann (University of dam) Prof. Dr. Lutz Reinhard Neck (University of Applied Sciences) Prof. Dr. Reinhard Selten (Nobel Prize sity of Hamburg) Prof. Dr. Kiel) Prof. Dr. Walburga von Kruschwitz (Free University of Klagenfurt) Prof. Dr. Hans Bernd Rudolph (University of Laureate, University of Bonn) Horst Tomann (Free University Zameck (University of the Armed Berlin) Prof. Dr. Jörn Kruse Nutzinger (University of Kassel) Munich) Prof. Dr. Gerhard Prof. Dr. Theodor Siegel of Berlin) Prof. Dr. Walter Forces Munich) Prof. Dr. (University of the Armed Forces Prof. Dr. Peter Oberender Rübel (University of Göttingen) (Humboldt-University Berlin) Trockel (University of Bielefeld) Ekkart Zimmermann (Dresden Hamburg) Prof. Dr. Hans-Ul- (University of Bayreuth) Prof. Dr. Jürgen Schaaf (Senior Econ- Prof. Dr. Norbert Simon Prof. Dr. Götz Uebe (Universi- University of Technology) Prof. rich Küpper (University of Mu- Dr. Renate Ohr (University of omist, Deutsche Bank, Frank- (Publisher and Managing Direc- ty of the Armed Forces Hamburg) Dr. Heinz Zimmermann (Uni- nich) Prof. Dr. Martin Kukuk Göttingen) Prof. Dr. Margit furt/Main) Prof. Dr. Hans- tor, Verlag Duncker & Humblot, Prof. Dr. Viktor Vanberg versity of Basel) Prof. Dr. Horst (University of Würzburg) Prof. Osterloh (University of Zürich) Bernd Schäfer (University of Berlin) Prof. Dennis Snower, (University of Freiburg) Prof. Dr. Zimmermann (University of Astrid Kunze, Ph. D. (Norwe- Prof. Dr. Notburga Ott Hamburg) Prof. Dr. Wolf Ph.D. (Birkbeck College, Lon- Wolfgang Veit (University of Marburg) gian School of Economics and Busi- (Ruhr-University of Bochum) Schäfer (University of the Armed don) Prof. Dr. Karl Socher Applied Sciences Cologne) Prof. ness Administration) Prof. Dr. Prof. Dr. Franz Palm (Universi- Forces Hamburg) Prof. Dr. (University of Innsbruck) Prof. Dr. Arnis Vilks (Rector Leipzig Oskar Kurer (University of Er- ty of Maastricht) Prof. Dr. Kees Bernd Schauenberg (University Dr. Rüdiger Soltwedel (Head Graduate School of Management) langen-Nürnberg) Prof. Dr. van Paridon (University of Rot- of Freiburg) Prof. Dr. Bertram of Department „Regional Econom- Prof. Dr. Uwe Vollmer (Uni-

Rüdiger Pohl Lars-Hendrik Röller Monika Schnitzer Reinhard Selten Thomas Straubhaar C. Christian von Weizsäcker 4 IZA COMPACT July/August 2003 The Swiss “Caseworker” System: A Silver Bullet Solution to the Placement Crisis in the Labor Market? Reintegration of the unemployed into the months, (2) six months work experience stints Together, the unemployed client and the case- labor market is a key issue of active labor marin public and private sector jobs that are cre- worker come to an agreement about the scope ket policy (ALMP). Questions about the effi- ated specifically as part of active labor market of the ALMP services that the client should re- ciency of the methods applied by the German policy efforts, and (3) wage subsidies for tem- ceive. These services are based on the client’s Federal Employment Sevices (BA) to allocate porary regular jobs in the private sector. Un- interests as well as the caseworker’s evaluation the unemployed to ALMP programs were rea- like in Germany, the training courses offered of his or her individual capabilities and the son enough for the government to instruct the under the ALMPs do not include occupation- availability of slots in relevant programs in the “Hartz Commission” to develop adequate real retraining - only further training within the region. form proposals. One of the reform elements current occupation. Participants of employ- the commission came up with revolves ment programs are required to continue their The study conducts an evaluation of the case- around the introduction of “case manage- job search while attending and to accept ap- worker model in comparison to alternative ment” as a tool to improve the reintegration propriate offers. Wages in these programs can allocation schemes such as a random assign- of job seekers into the labor market via in- in principle exceed the benefit level of the un- ment method or a „deterministic assign- creased individual counseling and motivation employment insurance (UI), but in practice ment“, which bases the placement in ALMP as well as supervision at the hands of cus- usually do not. Neither courses nor employ- programs on group status. An alternative tomer-oriented caseworkers. In creating such ment programs count toward further UI eligi- currently used in the U.S., among other coun- a system, the Federal Employment Services bility. The temporary wage subsidies are not tries, sees the allocation of individuals to can rely on the considerable experience of formally a part of the ALMPs but appear to be ALMP services by means of using statistical local authorities with individual counseling of treated as if they were. treatment rules. This scheme, sometimes social welfare recipients, as well as the experi- called „profiling“ or „targeting“, is based on ences of the Swiss labor market as yardsticks The general categories of programs offered in a statistical prediction of each claimant’s for success. Switzerland mirror those available in other de- probability of benefit exhaustion or expected

The question is whether case management really improves the matching process and, as Allocation of Participants to Treatments: it is a resource intensive tool, whether the out- Observed Shares and Assigment Basedon Predicted Gross Impact come is worth the effort. A new IZA study by Michael Lechner (University of St. Gallen) and Jeffrey A. Smith (University of Maryland) inves- tigates the allocation of the unemployed to different Swiss ALMP subprograms by caseworkers of the local employment offices in Switzerland in 1998. Of central interest is the question whether the caseworkers do allocate their clients to services in ways that maximize their employment prospects. Comparing the caseworkers’ impact with that of some alternative allocation schemes, the study arrives at somewhat surprising results. (For details see: Allocated Share Michael Lechner/Jeffrey A. Smith, What is the Value Added by Caseworkers?, IZA Discussion Paper No. 728.)

Swiss Active Labor Market Policy

Non-Participation Basic Courses Language Courses Computer Courses Further Vocational Other Courses Public Work Private Work Temporary Wage Switzerland is unique among European coun- Training Experience Experience Subsidy tries in terms of its low unemployment rates Services throughout much of the post-war period. In Observed shares Assignment based on largest predicted gross impact the 1970s and 1980s, the Swiss unemployment rate never exceeded 1.1%. In the 1990s, Source: IZA Discussion Paper No. 728 however, it began to rise to historically high levels with a peak of 5.2% in 1997. These high levels of unemployment, though still excep- veloped countries. With the exception of the benefit receipt duration. Claimants with tionally low by European standards, prompt- wage subsidies for temporary jobs, which rep- higher predicted probabilities of exhaustion ed the Swiss government to enact a series of resent the one unique aspect of the service (or longer expected durations of benefit re- unemployment law reforms and active labor mix in Switzerland, the Swiss ALMP scheme ceipt) receive the mandatory services while market policies in the mid-1990s. (Cf. ”The resembles the German system quite strongly. those with lower predicted probabilities do Rise and Fall of Swiss Unemployment – The Situa- not. This scheme assigns treatment based on tion of the Low-Skilled“, IZA Compact April/May How the Caseworker Model Works the predicted outcome in the absence of 2003.) treatment, rather than on the predicted The allocation model realized in the form of the impact of the treatment. Assignment on the In the wake of the 1996 unemployment law Swiss caseworker scheme is based on the idea basis of outcomes rather than of impacts reform it became mandatory for individuals that an optimal assignment to an ALMP pro- may serve equity goals (such as allocating the to participate in employment and training ser- gram aiming at the eventual reintegration of least employable among the unemployed to vices once they have been unemployed for 150 the unemployed individual into the labor mar- the most intensive services), unless partici- days (30 weeks). These services comprise ket requires knowledge about individual char- pants with the worst expected employment three general categories: (1) classroom train- acteristics of the unemployed person, the local outcomes in the absence of services also have ing of various sorts and length of up to six labor market and local ALMP service providers. the largest impacts from services. IZA COMPACT July/August 2003 5

In Switzerland, each caseworker has 75 to 150 shows that Swiss caseworkers either do not with econometric forecasts in the allocation clients to work with and, every month, meets seek to maximize post-program employment of unemployed persons to services in order to each one of them for an in-depth interview. rates when they assign their clients to alterna- maximize employment chances following the This is substantially more in-person contact tive services, or they do try but fail to do a completion of a respective ALMP program. than participants would receive in most other good job. Swiss caseworkers appear to be as The findings of the study should spur in- developed countries. It also means that Swiss efficient as randomly assigning clients to ser- creased research endeavors in this field, in caseworkers have the opportunity to gain a vices and somewhat less efficient than econo- particular with regard to a cost-benefits large amount of information about the metric allocation schemes based on estimates analysis for alternative programs. The study claimant’s needs and abilities - information of the employment probability associated also raises the question whether caseworkers that, in principle, should enable them to ef- with each alternative for each person condi- should receive additional training in order to fectively match claimants to services. tional on observed characteristics. The figure enhance the efficiency of their allocation (p. 4) clearly depicts a discrepancy between work. With regard to Germany, the IZA study Given the large amount of information they the – less efficient – allocation pattern at the should dampen some of the overly high ex- possess about their clients and the flexibility hands of caseworkers and a placement pat- pectations of those who believe that the re- which is characteristic of the highly decentral- tern based on an econometric allocation shaping of German further training placement ized Swiss system, it could be argued that the method. procedures along the lines of a more individu- performance of Swiss caseworkers in their al- alized approach in the wake of the introduc- location task should mark an upper bound Conclusion tion of case management schemes will vastly for caseworkers in other developed countries. However, this analysis focuses only on one, al- improve the unemployed individual’s chances However, this does not appear to be the case. of rejoining the labor market. The introduc- Even though Swiss caseworkers are making beit central, task of caseworkers. But Swiss tion of caseworkers might be able to increase use of the flexibility available to them in as- caseworkers, as well as their equivalents from allocation efficiency slightly, but a decisive im- signing their clients to all of the treatment other developed countries, perform a number types and do so with respect to their observed of functions in addition to service allocation, provement of the unemployed’s prospects of characteristics, they do not seem to add much whose impacts were not subject of the study. rejoining the labor market via the introduc- value in their role as service allocators. These additional functions include monitor- tion of caseworker schemes does not seem ing the unemployed and encouraging them to feasible. A substantial improvement would re- In fact, after comparison with alternative allo- look for work or training, networking with quire the creation of an intelligent set of in- cation methods based on the statistical employers to develop opportunities for subsi- centives to take up employment along the records of 19,000 unemployed individuals in dized temporary jobs, keeping abreast of local lines of the workfare concept proposed by IZA the age bracket 25-55 and their employment ALMP training opportunities etc. (cf. IZA Compact April/May 2003). status one year after the start of the program, using the non-experimental impact estimates Nevertheless, the evidence found suggests from a multi-treatment matching procedure that improvements could be achieved by sup- and a multinomial probit model, the study plementing subjective caseworker judgment

PR ZA IZ Well-known economists nominated for I E

I IZA Prize in Labor Economics – IZA Prize N

L S A B IC O Committee decides on 2003 laureate R M EC O N O

Klaus F. Zimmermann George A. Akerlof Gary S. Becker James J. Heckman Gerard A. Pfann

IZA thanks all IZA Research Fellows for of Chicago), as well as IZA Director Klaus te Jacob Mincer (Columbia University, New their active participation in this year’s no- F. Zimmermann and Gerard A. Pfann (Uni- York). IZA will announce the name of mination process for the IZA Prize in versity of Maastricht), will decide on the this year’s prize-winner on a special occa- Labor Economics. The IZA Prize Commit- 2003 laureate within the next few weeks. sion. The official award ceremony will tee, including Nobel Prize laureates As last year, the list of nominees contains take place on September 22, 2003 in George A. Akerlof (University of California, many internationally well-known labor Berlin. All IZA Research Fellows are cordi- Berkeley), Gary S. Becker (University of economists. One of them will be chosen ally invited. Chicago) and James J. Heckman (University to succeed the inaugural IZA Prize laurea- 6 IZA COMPACT July/August 2003 Time Limits for Welfare and Tax Credits for Lower Incomes: Do They Reduce Welfare Use?

A recent study by IZA Research Fellow Jeffrey the findings from the Florida analysis in sug- Another objective of the analysis was to un- Grogger (University of California, Los Angeles) gesting that time limits have had important derstand the broader effects of time limits. analyzes the effects of time limits, the EITC effects on welfare use and work, accounting The regression estimates carried out show (Earned Income Tax Credit), and other policy for about one-eighth of the decline in wel- that time limits have substantial effects on changes on welfare use, work and income fare use and about 7% of the rise in em- welfare use and employment, somewhat among American female-headed families, ployment since 1993. They have had no lesser effects on labor supply, and little if any who are the primary target for cash aid under significant effect on earnings or income, effect on earnings or income. That the effects U.S. welfare law. It is the first study to pro- however. The analysis also shows that the on labor supply and earnings are smaller vide direct estimates of the effects of the seems reasonable. This is also due to has- EITC on welfare use, and the only study to es- collective effects of other reforms have had timate the effects of the EITC on earnings or important impacts on employment and labor tened job search resulting in jobs that are income (see Jeffrey Grogger, The Effects of Time supply. Furthermore, it identifies the Earned both less durable and less remunerative. Limits, the EITC, and Other Policy Changes on Wel- Income Tax Credit (EITC) as a particularly Time limits have had no significant effect on fare Use, Work and Income Among Female-Headed important contributor to both the recent de- family income, which involves not only the Families, in: The Review of Economics and Statistics, crease in welfare use and the recent increase work of the family head but also the family’s 85(2), pp. 394-408/IZA Reprint No. 190). in employment, labor supply, and earnings. living arrangements and the work behavior of other family members.

EITC: Tax cuts explain decrease in welfare Welfare Use and Employment in US Female-Headed Families (in %) A further goal of this study was to estimate the effects of the EITC on a broader range of outcomes than had previously been considered. In this regard, the results indicate that the recent EITC expansions have had substantial effects on almost all dimensions of behavior. In fact, as Grogger’s analysis shows, the EITC may be the single most important policy measure for explaining the decrease in welfare and the rise in work and earnings among female headed families in recent years. Beyond time limits and the Percent EITC, other reforms have had small net effects on welfare use but important effects on employment, labor supply, and (to some extent) earnings and income.

Overall, the results show that time limits have substantial effects on welfare use but smaller effects on employment, suggesting that time limits primarily move families off the welfare Welfare Use Employment rolls who were previously combining work and welfare. The EITC, in contrast, had simi- Source: Grogger, The Effects of Time Limits ..., p. 396 lar effects on welfare use and employment, suggesting that tax cuts primarily moved non- working welfare families into the workforce. Of all the welfare reforms that were imple- Time limits lower number of welfare Although this analysis contributes in a mented during the 1990s, time limits may dependents number of ways to an understanding of the represent the single greatest break from past According to the analysis, time limits can effects of time limits and other recent policy policy. Under the new law, introduced in lead to different behavior among families changes, it leaves a number of questions 1996, families with underage children with underage children. Families whose unanswered. A full assessment of the impact (younger than 18 years) generally may receive youngest children exceed the threshold age of of welfare reform will require information on federally funded benefits for no more than 60 13 years are unaffected by time limits be- its effects on the well-being of children in months during their lifetimes. Many states cause these amount to a nonbinding con- poor families. It will also require insights into have imposed even shorter time limits. Al- straint for those families – i.e. they can only the effects of other specific reforms, such as though early evidence from administrative receive welfare for a maximum of five years work requirements, sanctions policies, and caseload data suggested that time limits had anyway and thus tend to take full advantage reduced benefit reduction rates. The work little effect on welfare use, a recent analysis of their entitlement. In contrast, the esti- presented here contributes in only a limited of data from a Florida welfare reform demon- mates indicate that the average family whose way to the broader question of whether wel- stration found them to have substantial ef- youngest child is three years old reduces its fare reform has been successful. Nonetheless, fects (see: Jeffrey Grogger/Charles Michalopoulos, welfare use in response to time limits by 6.6 the findings provide evidence that social Welfare Dynamics under Times Limits, in: Journal percentage points and increases its employ- policy reforms help to increase work incen- of Political Economy, 111(3), pp. 530-554). ment by 3.4 percentage points. But time tives and get people back into employment. limits may hasten job search and thus lead to The results from Grogger’s study on time poorer job matches, which potentially has limits and the EITC based on data from the negative effects on job duration and income March Current Population Survey confirm level. IZA COMPACT July/August 2003 7 “IZA Tower Talk” with Labor Market Expert of the Green Party

ployed. At the same time, the goal of this initiative is to ensure the sustainability of a modified social security system.

Dückert named the redesign of the German crafts code as one example of abolishing ob- solete privileges and employment impedi- ments. The merging of unemployment assistance and social welfare benefits is supposed to create more flexibility. This reform would not only lead to a slimmer bureaucratic apparatus but also reduce the discrimination of welfare recipients. It would furthermore relieve the budgets of the municipalities, which would no longer be responsible for this new form of unemployment assistance.

The labor market expert of the Green Party also emphasized the need to restructure the intergenerational contract more thoroughly than what has been discussed so far. To avoid placing an ever greater financial burden on labor, the current generation of retirees Thea Dückert would also have to contribute their fair share. According to Dückert, the spiral of pension contribution hikes, which is accompanied by Dr. Thea Dückert On July 10, 2003, Hilmar Schneider, IZA Direc- decreasing prospects of adequate old-age tor of Labor Policy, welcomed Thea Dückert, income security, needs to be stopped: “This is Ph.D. in Economics MP as guest speaker at the 2nd IZA Tower a misguided interpretation of solidarity.“ She Talk. Dückert is vice chair and labor market also demanded that the “horrible practice of Member of Parliament expert of the Green Party parliamentary fac- early retirement“ be abandoned since the re- (German Bundestag) tion in the German Bundestag. In her speech sulting vacancies often remain unfilled. With since 1998 she analyzed the vast need for reform in Ger- respect to demographic change, she called many. According to Dückert, the labor for a “culture of senior citizens’ work“. The Vice chair and expert for labor and market reform efforts combined in the con- Green Party politician also advocated a form social policy of the Bündnis 90/ cept presented by the “Hartz Commission” of health insurance that involves all groups of Die Grünen (Green Party) and in the Agenda 2010 merely “mark the be- society while substantially reducing the finan- parliamentary faction ginning of more comprehensive measures yet cial burden on each individual. to come.” Standing member of the parliamentary Given the desolate state of the economy, committee on economics and labor She rebutted the accusation by unions that Dückert warned not to expect the current the proposed reforms would negatively affect reform efforts to show a fast and visible certain groups in society while favoring impact. Although important steps have al- others such as civil servants. “The German ready been taken, they will require “some high degree of political responsibility to be people comprehend faster than their politi- fine-tuning here and there“ and still leave borne by the parliamentary opposition and cians“, she said. “They know that it will take much to be desired. She also pointed at the the state representatives in the Bundesrat. fundamental reforms of the labor market and the social security system to ensure the future functioning of our welfare state.“ Dückert also rejected the argument that the Green Party gets crushed between the two major parties as their positions are increasingly con- verging: “The reform proposal by the German government has an unmistakably Green touch to it.“

The topic of her speech, “Redefining Solidar- ity – Creating Fair Access to the Labor Market“, hinted at the Green Party’s new approach to restructuring the labor market and the welfare state according to what has come to be called “Flexicurity“. This concept is based on enhanced flexibility, the reduction of red tape, the removal of obstacles to employment, and the requirement of more indi- Thea Dückert Hilmar Schneider vidual initiative on the part of the unem- 8 IZA COMPACT July/August 2003 Second Conference of the “International Research Consortium in the Economics of Time Use”

them to shop at more convenient times, with time jobs the time that they devote to child no change in total hours spent shopping. For care does not differ from that of women who others the previous law had been so restric- do not work for pay. Where part-time jobs tive that, in addition to changing the timing are scarce, however, women who work for of shopping, they also increased their total pay cut back on the hours they devote to hours spent in this activity. caring for their children.

The determination of the total hours of labor Michael Horrigan and Diane Herz (both U.S. supplied to the market is probably the most Bureau of Labor Statistics) presented a well-studied issue in labor-market behavior, chronicle of the development of the new but nearly all research relies on individuals’ American Time Use Study. Until this survey recalling how much time they spent in a pre- the U.S. had been relatively backward in its vious week or year. Anders Klevmarken (Upp- collection of time-diary data. Since 2003, sala University and IZA) used Swedish time however, the new survey is systematically col- use data to study how our inferences about lecting time diaries and other information such determinants of labor supply as higher from around 1,700 individuals a month, thus wage rates are affected when we measure promising to be the largest time-budget hours of market work based on time diaries survey in the world and the only one con- rather than retrospective reports. The effects ducted at frequent regular intervals. are substantial and indicate that much of what we have been led to believe about labor Patricia Apps (University of Sydney and IZA) and Ray Rees (University of Munich) integrat- Daniel Hamermesh supply is questionable. Based upon Aus- tralian, German, Dutch and American data ed Australian data on time use with other Daniel Hamermesh (University of Texas at On May 26 and 27 the second conference of Austin and IZA) studied the determinants of the International Research Consortium in the temporal routine-performing the same activi- Economics of Time Use was held at the ty at the same time on each of a number of Chateau Saint Gerlach in the Netherlands. days. As peoples’ income rises, they engage in The conference consisted of papers covering less routine behavior. While variety is costly, issues in time use based on data from Aus- in terms of the time it takes to switch activi- tralia, Denmark, Germany, Italy, the Nether- ties, it is also something that people appar- lands, Spain, Sweden, the United Kingdom ently find desirable. and the United States. According to the study by Namkee Ahn Time use data typically are collected in “time- (FEDEA Madrid) and Juan Francisco Jimeno budget“ surveys, in which researchers or, (FEDEA Madrid and IZA) the unemployed more typically, government agencies develop spend more time in comparison to employed large samples of citizens who, in addition to workers and to those who do not participate the usual demographic and economic infor- in the labor market enjoying passive leisure mation, maintain diaries of what they were (for example, watching television) and per- doing at each hour of the previous day. Such forming household chores. Using data from data are the only vehicle for investigating a Germany, Italy and Sweden, Andrea Ichino (Eu- huge variety of issues in the behavior of labor, ropean University Institute and IZA) and Anna and they are becoming increasingly available. Sanz de Galdeano (University Carlos III, Madrid) considered the interaction between Stephen Jenkins (University of Essex and IZA) the flexibility of work hours and the amount Nina Smith and Lars Osberg (Dalhousie University), pre- of time mothers devote to child care. They observe that if mothers have access to part- Australian data on wealth and savings to ex- sented new research results on the issue amine the interaction of the two. This inte- whether the presence of people with similar gration modifies our notions of how people’s demographic backgrounds affects an individ- behavior varies over the life cycle of marriage, ual’s leisure time activities. Using longitudinal child-rearing, “empty-nesting“ and retire- British data, they showed that in this case in- ment. dividuals will engage in more leisure-time activities that are done with a group. These René Fahr (IZA) examined how the amount of findings have implications for the social inte- time spent in informal education in Germany gration of communities. Nina Smith (Universi- differs by the level of formal schooling. Ap- ty of Aarhus and IZA), Nabanita Gupta and parently, there is a positive correlation be- Jens Bonke (both University of Aarhus) used tween the two, which suggests that informal Danish data to examine the impact of the activities help widen the gap in earnings, and amount of housework that people do on economic status, that is created by differ- their wages and particularly on the male- ences in the amount of formal schooling that female wage gap. They conclude that the people acquire. Frank Stafford (University of impact of the amount of time spent at home Michigan) and Jean Yeung (New York Universi- on wages is minor. The kinds of tasks per- ty) studied how mothers’ and fathers’ time formed at home, however, do matter, with spent with children differs in the United women performing the preponderance of States. tasks whose timing is inflexible. Joyce Jacobsen (Wesleyan University) and Peter Kooreman The IZA conference gave stimulus to intensi- (University of Groningen and IZA) looked at fied research on the economics of time use the impact of a change in the law that ex- and showed the importance of this research panded shopping hours in the Netherlands. area for a better understanding of labor For many people the main effect was to allow Stephen Jenkins market behavior. IZA COMPACT July/August 2003 9

“The Phillips Curve Revisited” – Renowned International Economists Held Conference in Berlin on IZA Initiative

Prices” by Stephanie Schmitt-Grohe and Martin Uribe), and “Optimal Monetary and Fiscal Policy: A Linear Quadratic Approach” by Michael Woodford and Pierpaolo Benigno). Lawrence Christiano and Martin Eichenbaum (both Northwestern University, USA) presented their latest simulations on the effects of economic fluctuations in a monetary economy (“Monetary Policy and the Dynamic Ef- fects of Technology Shocks” by David Altig, Lawrence Christiano, Martin Eichenbaum and Jesper Linde). Julio Rotemberg (Harvard Univer- sity) showed that the effectiveness of monetary policy can be explained through a new nominal rigidity: customer resentment of price increases (“Customer Anger at Price In- Harald Uhlig Gustav A. Horn Dennis J. Snower creases, Changes in the Frequency of Price Adjustment, and Monetary Policy”). A conference on “The Phillips Curve Revisit- western University, Evanston/Illinois) argued The final session was devoted to understand- ed,“ in Berlin on June 5-7, 2003, was spon- that his “triangle model” can successfully ex- ing the recent performance of the European sored by IZA in conjunction with the London plain inflation and unemployment dynamics economies. Robert Hall (Stanford University) based Centre for Economic Policy Research (“Nesting the New Keynesian Phillips Curve presented a new model of “Wage Determina- (CEPR), the German Institute for Economic within the Mainstream Model of US Inflation tion and Employment Fluctuations,” showing Research (DIW Berlin), and the Schumpeter Dynamics” by Robert Gordon and Jon W. Eller), how labor turnover costs can affect employ- Institute of Humboldt-University, Berlin. The while Jordi Galí (University Pompeu Fabra, organizers were Gustav A. Horn (DIW Berlin), Barcelona) presented evidence in favor of the Harald Uhlig (Humboldt-University, Berlin), new, microfounded approach (“Robustness of and IZA Program Director Dennis J. Snower the Estimates of the Hybrid New Keynesian (Birkbeck College, London). The conference Phillips Curve” by Jordi Galí, Mark Gertler and J. took stock of the latest developments on the David Lopez-Salido). Wolfgang Franz (President of interaction between monetary phenomena the Center for European Economic Re- and real economic activities (such as produc- search/ZEW, Germany) presented German ev- tion, employment, and unemployment). One idence against the NAIRU hypothesis that there is no tradeoff between inflation and unem- objective was to bring alternative approaches ployment in the long run (“Will the (German) to the Phillips curve – theoretical and empir- NAIRU Please Stand Up?”). ical – into contact with another, so that their relative strengths and weaknesses, their ex- Session 3 was concerned with the implica- planatory power, and policy implications tions of the Phillips curve for monetary and could be clarified. In this context, another fiscal policy. George Evans (University of aim was to help explain the performance of Oregon) presented one of two papers exam- the European and U.S. economies in recent ining the influence of central bank learning years, particularly the long-lasting low-infla- (“Adaptive Learning and Monetary Policy tion boom of the 1990s and the subsequent Design” by George Evans and Seppo Honkapohja recession. and „Rule-based Monetary Policy and Cen- tral Bank Learning” by Kosuke Aoki and Kalin Edward Prescott Session 1 of the conference was concerned Nikolov). Three further papers dealt with the with microeconomic foundations of the optimal interaction between monetary and ment via the wage setting process. Edward Phillips curve, which have revolutionized our fiscal policy (“Optimal Fiscal and Monetary Prescott (University of Minnesota and Federal understanding of the trade-off between infla- Policy Equivalence Results” by Isabel Correia, Reserve Bank of Minneapolis) examined the tion on the one hand, unemployment, em- Juan Pablo Nicolini and Pedro Teles, “Optimal role of taxes in answering the question “Why ployment, and output on the other. It has Fiscal and Monetary Policy under Sticky Do Americans Work So Much and Europeans given rise to the New Keynesian Phillips curve, So Little?” Boyan Jovanovic (University of Chica- which is at the heart of recent models of the go) presented a model to explain stock market monetary transmission mechanism and the crashes, particularly the inflation of stock interactions between monetary and fiscal prices followed by a sudden burst (“Shakeouts policies. The session examined how the dy- and Market Crashes” by Boyan Jovanovic and namic relation between inflation and macro- Alessandro Barbarino). Finally, Varadarajan V. economic activities is affected by the slow Chari (University of Minnesota) showed how dispersion of information (“Monetary Policy the predictions of a large class of economic for Inattentive Economies” by Laurence Ball, N. models are observationally equivalent to a pro- Gregory Mankiw and Ricardo Reis), by „menu totype growth model with time varying effi- costs” of price change (“Menu Costs and ciency, labor, and investment wedges, thereby Phillips Curves” by Mikhail Golosov and Robert providing a new method for guiding develop- E. Lucas Jr.) and the interaction between ment of quantitative models of economic fluc- money growth and nominal inertia (“A Reap- tuations (“Business Cycle Accounting” by V. V. Chari, Patrick J. Kehoe and Ellen R. McGrattan). praisal of the Inflation-unemployment Trade- off” by Marika Karanassou, Hector Sala and The conference succeeded in evaluating the Dennis Snower). main theories of the Phillips curve, assessing Session 2, devoted to empirical issues, saw a their distinctive empirical predictions, and ex- clash between defenders of the traditional ploring their policy implications. The papers are downloadable from the conference web- Phillips curve and those supporting the New George Evans Keynesian Phillips curve. Robert Gordon (North- site: www.phillips-curve-revisited.de. 10 IZA COMPACT July/August 2003 Obituary on IZA Research Fellow Mark C. Berger

The members of IZA 1981, he joined the University of Kentucky as training, the earnings and employment of are deeply saddened an assistant professor. He spent his entire, in- workers, unemployment insurance, health in- by the sudden pass- fluential teaching career at the University’s surance issues and higher education. His re- ing of Mark C. Berger Department of Economics (since 1996 Gat- search has been published in such journals as on April 30, 2003 at ton College of Business and Economics) as an American Economic Review, Journal of Political the age of 47. He had Associate Professor until 1989 and Professor Economy, Review of Economics and Statistics, Journal been an IZA Research since 1989, before named Director of CBER in of Labor Economics, Industrial and Labor Relations Fellow since Decem- 1994 and Sturgill Professor in 1998. Several Review, and Journal of Human Resources. Among ber 2000 and recent- visiting professorships and fellowships led his colleagues and students he was highly val- ly came to IZA for a him to the University of Chicago and the Eu- ued as a great scientist and teacher. In Mark’s research visit. ropean Universities of Vienna, Ekaterinburg memory the “Mark C. Berger Applied Micro- Mark C. Berger ✝ and Dublin. Furthermore, he served on the economics Workshop Endowment Fund” has Mark Berger was the editorial boards of the scholarly journals been established. William B. Sturgill Professor of Economics Growth and Change, Applied Economics, and Eco- and Director of the Center for Business and nomics of Education Review. IZA and all IZA Research Fellows will cherish Economic Research at the University of Ken- Mark Berger’s important contributions to tucky (CBER). After receiving his doctorate in Mark Berger conducted applied research on a labor economics in memory. economics from Ohio State University in broad field of subjects including on-the-job-

New IZA Book: “Family, Household and Work”

Statistics provide clear observations of recent higher professional ambitions. Furthermore, trends of family change: The number of the expansion of social security systems de- single-person households increased. Age of creased the need of family assistance in dis- marriage, as well as women’s age at first tress and old age. motherhood became remarkably higher. Fer- tility has fallen rapidly. The number of di- A new IZA volume, edited by IZA Director vorces has steadily increased. The ancestral Klaus F. Zimmermann and IZA Scientific Man- role allocation became less relevant in prac- ager Michael Vogler, presents a collection of tice, because today neither economic nor recent economic research work on the re- social constraints are as important for the sources management and development of decision to start a family as they were in the families and households respectively. Assort- past. From an economic point of view, there ing three general topics, it focuses on the are several reasons: In the course of increas- time allocation within the household, the ing equality today the average woman is by family structure and development, and the far better educated than before. In some in- transition to work of young adults. (Klaus F. dustrial countries she even has a school edu- Zimmermann/Michael Vogler (eds.), Family, cation superior to that of the average man. Houshold and Work, Berlin 2003 – ISBN 3-540- This led to more financial autonomy and 00360-6).

New IZA Book: “Labor in an Aging Society”

The labor force participation rate as well as (IZ), the research group “Aging and Curricu- the conditions and consequences of the lum Vitae” (FALL) and the Institute of Sociol- work-retirement transition of older individu- ogy at the Free University of Berlin. The als are pivotal topics in social science. In the volume, edited by Matthias Herfurth (IZ), light of a rapidly changing labor market and Martin Kohli (FALL) and IZA Director Klaus F. the demographic aging process they become Zimmermann, offers a comprehensive overview even more explosive. Will the future demand of the present research in the field of socio- for older employees increase? Will shortages logy and economics. A scientometric descrip- of young qualified workers and severe finan- tion of the research area as well as a com- cial problems of the social security systems mented selection of information resources force our society to extend the life working (institutions, websites) and a glossary are ad- time and to establish new retirement models? ditional parts of the book. A CD-ROM with What are the challenges for firms with regard bibliographic references is also included. to qualification and conservation of produc- (Matthias Herfurth/Martin Kohli/Klaus F. Zim- tivity among older employees? A new book, mermann (eds.), Arbeit in einer alternden provides answers to these questions. It is the Gesellschaft. Probleme und Perspektiven der Er- result of an extensive cooperation between werbsbeteiligung Älterer, Leverkusen 2003 – ISBN IZA, the Social Science Information Centre 3-8100-3816-4). IZA COMPACT July/August 2003 11 External CPB Review Committee chaired by Klaus F. Zimmermann presents final report

Chaired by IZA Director Klaus F. Zimmermann, political parties, trade unions, and employers’ an external Review Committee of the CPB associations. Netherlands Bureau for Economic Policy Analysis, The Hague, presented its final report “This external assessment gave us a unique to the public on June 26, 2003. The high- opportunity not only to understand the func- ranked international expert committee evalu- tioning of CPB, but also the working of Dutch ated the performance of CPB and identified politics and the economic process in the possible areas for further improvement. CPB’s country,” said Zimmermann. He applauded main task is to provide independent econom- CPB’s effort to sharpen its strategy of scienti- ic analyses and forecasts that are relevant for fic research and policy advice through a seri- CPB Review Committee, policy decisions of government, parliament, ous external evaluation, which “sets an exam- headed by Klaus F. Zimmermann and other societal organizations such as ple for other institutions in the field.”

Armin Falk to succeed Gerard A. Pfann as IZA Research Director

After two productive years as IZA Research Zimmermann honored Pfanns contributions to Director, Gerard A. Pfann has returned to stimulating the institute’s research activities Maastricht University where he will continue and establishing the IZA Prize in Labor Eco- to head the Business Investment Research nomics. His successor as IZA Research Direc- Center (BIRC). As managing editor of the tor as of October 2003 will be Armin Falk European Economic Review and co-organizer (currently University of Zurich), who has been of the IZA/SOLE TransAtlantic Meeting of appointed to a faculty position at the Univer- Labor Economists, he will continue to main- sity of Bonn (see IZA Compact April/May Gerard A. Pfann Klaus F. Zimmermann tain close ties to IZA. IZA Director Klaus F. 2003).

IZA Reseach Fellow Röller becomes Chief Economist at EU Directorate General for Competition Mario Monti, Head of reorganization of the EU anti-trust authority, Röller has been an IZA Research Fellow since the Directorate Gener- Röller will face a number of great challenges. 1999 and heads the Research Unit „Compet- al for Competition of He will start his new post in September for a itiveness and Industrial Change” (CIC) at the the European Commis- period of three years. Social Science Research Center Berlin (WZB). sion, has appointed IZA congratulates Röller on his new assign- anti-trust expert Lars- “Lars-Hendrik Röller is the ideal candidate ment and wishes him the best of success. Hendrik Röller (Hum- for this important position. Under his leader- boldt University Berlin, ship, the merger control efforts of the EU will WZB and IZA) as Chief no doubt be based on sound economic Lars-Hendrik Röller Economist of his insti- analysis,” said IZA Director Klaus F. Zimmer- tution. After the recent mann in response to this hiring decision.

David Jaeger succeeds Ken Troske as IZA Visiting Research Fellow Alexander von Humboldt Foundation awards fellowship to Jaeger

After a 12-month research stay at IZA, Ken Fellowship for his stay in Germany, as Troske’s Troske (University of Missouri, Columbia) re- successor. turns to the United States. Troske said he was impressed by the constantly high quality of The new IZA Visiting Research Fellow is cur- IZA’s research work and the excellent working rently Professor of Economics at the College of conditions at the institute. Besides his own re- William and Mary. After receiving his Ph.D. search, he also acted as an important coun- from the University of Michigan in 1995, he worked for the U.S. Bureau of Labor Statistics, selor for other IZA projects and enriched sever- at Hunter College and the Graduate Center of al IZA events and discussions with his presen- the City University of New York. He was also tations. K. Troske K. F. Zimmermann D. Jaeger Visiting Professor at Princeton University. His research focuses on immigration and migra- IZA Director Klaus F. Zimmermann was very renowned US economists to our institute for tion, education, job stability and mobility, and pleased at the successful première of the IZA future cooperation and joint projects. This applied econometrics. His work has been pub- Visiting Research Fellowship. “This opportuni- should become a good tradition”, said Zim- lished in the Journal of the American Statistical As- ty to spend an extended period of time at IZA mermann. He welcomed David Jaeger (College sociation, the Review of Economics and Statistics, the demonstrates our close relationship with the of William and Mary, Williamsburg, Virginia), Journal of Labor Economics, and Research in Labor American research community and commits who was awarded an Alexander von Humboldt Economics, among others. 12 IZA COMPACT July/August 2003

Ruhr-University of Bochum offers US Economists Faculty Position to IZA Program Carmel and Barry Chiswick visit IZA

Director Thomas Bauer On July 28, IZA welcomed its After his habilitation at the University of Bonn, renowned Research Fellows Carmel IZA Program Director Thomas Bauer received an and Barry Chiswick (both University of Illinois, Chicago) for a research offer to join the Department of Economics at the visit in Bonn. IZA Director Klaus F. Ruhr-University of Bochum, where he is sup- Zimmermann stressed the important posed to assume a professorship in the next role of the IZA Guest Researchers winter term. His habilitation thesis was super- Program in establishing IZA as a vised by IZA Director Klaus F. Zimmermann and central place of academic commu- dealt with “Labor Market Effects of Flexible nication for international labor C. Chiswick B. Chiswick T. Bauer Workplace Systems: Evidence from Germany”. economists.

IZA Workshop on “Interactions between Labor and Financial Markets” The workshop hosted by IZA on May 30-31, compensation and workers’ wages. Moreover, ployment, job creation and rent sharing. The focused on an emerging area of economic re- the participants investigated the role of firms seminar also incorporated a politico-economic search with participants discussing various as- providing partial insurance to workers, the perspective by providing an economic analysis pects of labor and financial market interac- sorting of workers into firms with different of why labor markets tend to be more regu- tions. An emphasis lay on an analysis of the risks and the interactions between self-em- lated when capital markets are less efficient. microstructure of these interactions, includ- ployment and financial wealth. The workshop ing the effects of corporate governance and then went on to discuss the macro level ef- product market competition on managerial fects of capital market imperfections on em-

Second IZA/SOLE TransAtlantic Meeting of Labor Economists Co-organized by IZA, the second IZA/SOLE They also used this opportunity to develop fu- ural Experiments”. This broad variety of topics TransAtlantic Meeting of Labor Economists ture research cooperation in these fields. Sev- reflects the main goal of the annual TransAt- took place in Buch on Lake Ammersee, Ger- eral specialized sessions dealt with “Economics lantic Meeting, which is to foster further re- many, June 5-7, 2003. Again a large number of of the Family”, “Women and the Labor Mar- search in all areas of labor economics. See well-known economists discussed recent ket”, “Search and Matching”, “Firm Behavior www.iza.org for a complete conference pro- progress in labor economics and econometrics. and Work“, “Wage Determination” and “Nat- gram and the presented papers.

IZA expands its apprenticeship program As part of its own “active labor market poli- apprenticeship in 2006. In September 2003 cy”, IZA has established two new high-quality Manuela Buchholz will start her three-year ap- apprenticeships in the areas of IT and office prenticeship as an office administrator for organization. Both vacancies were filled im- business communications. Her program in- mediately. Astrid Zeitz-Fehse joined IZA as an IT cludes office management as well as assistant trainee in July 2003. Her tasks include the and secretary tasks, information processing, maintenance of hardware and software com- personnel administration and accounting. ponents. She also takes part in providing support for the TeX typesetting system and relat- ed graphical user interfaces. She will finish her Astrid Zeitz-Fehse Manuela Buchholz

IZA Research Associates René Fahr and Thomas Dohmen receive doctorate Matching: Some Implications for Career Choice and Labor Market Policy” includes chapters on the demand for informal education and the evaluation of the German apprenticeship system when occupational mobility is important, as well as empirical investigations of mismatch unemployment in Germany. IZA Director Klaus F. Zimmermann and IZA Research Fellow Matthias Kräkel (University of Bonn) were part of the examination committee.

K. F. Zimmermann R. Fahr M. Kräkel Thomas Dohmen, who has been an IZA Re- G. A. Pfann K. F. Zimmermann search Associate since January 2003, received T. Dohmen F. C. Palm his doctorate from the University of Maas- René Fahr is the forth IZA Resident Research tricht also in May 2003. His thesis entitled Among the members of the examination com- Affiliate who completed his Ph.D. studies at "Internal Labor Markets: Theory and Evidence mittee were Franz C. Palm (University of Maas- the Bonn Graduate School of Economics at the Firm Level” was supervised by IZA Re- tricht) and IZA Director Klaus F. Zimmermann. (BGSE) in May 2003. His dissertation entitled search Director Gerard A. Pfann, who is also "Occupational Mobility and Occupational Director of BIRC at Maastricht University. IZA COMPACT July/August 2003 13

IZA DISCUSSION PAPER SERIES From May to July 2003 IZA Discussion Papers included the following titles (a complete list is available on our homepage at www.iza.org - all papers are downloadable):

827 Hielke Buddelmeyer, Emmanuel 811 Miles Corak, Wen-Hao Chen 795 Barry T. Hirsch Skoufias Firms, Industries, and Unemployment Reconsidering Union Wage Effects: An Evaluation of the Performance of Insurance: An Analysis Using Employer- Surveying New Evidence on an Old Topic Regression Discontinuity Design on Employee Data 794 Paul Frijters, Michael A. Shields, PROGRESA 810 Jaap Abbring, Gerard J. van den Berg Stephen Wheatley 826 Karsten T. Hansen, James J. Heckman, A Simple Procedure for the Evaluation of Price Investigating the Quitting Decision of Kathleen J. Mullen Treatment Effects on Duration Variables Nurses: Panel Data Evidence from the The Effect of Schooling and Ability on 809 Simon Commander, Mari British National Health Service Achievement Test Scores Kangasniemi, L. Alan Winters 793 Tapio Palokangas 825 Antonio Filippin, Andrea Ichino The Brain Drain: Curse or Boon? Foreign Direct Investment, Labour Market Gender Wage Gap in Expectations and 808 Frédéric Docquier, Hillel Rapoport Regulation and Self-Interested Governments Realizations Remittances and Inequality: A Dynamic 792 Lex Borghans, Bas ter Weel 824 Antonio Filippin Migration Model What Happens When Agent T Gets a Discrimination and Workers’ Expectations: 807 Paul Frijters, Michael A. Shields, Computer? The Labor Market Impact of Experimental Evidence Nikolaos Theodoropoulos, Stephen Cost Efficient Computer Adoption 823 Antonio Filippin Wheatley 791 Maia Güell Discrimination and Workers’ Expectations Price Testing for Employee Discrimination Fixed-Term Contracts and the Duration 822 Doris Weichselbaumer, Rudolf Using Matched Employer-Employee Data: Distribution of Unemployment Winter-Ebmer Theory and Evidence 790 Alessandro Cigno, Annalisa The Effects of Competition and Equal 806 Gerard J. van den Berg Luporini, Anna Pettini Treatment Laws on the Gender Wage Multiple Equilibria and Minimum Wages in Hidden Information Problems in the Design Differential Labor Markets with Informational Frictions of Family Allowances 821 Pedro Carneiro, James J. Heckman and Heterogeneous Production Technologies 789 José A. Cabral Vieira, Ana Rute Human Capital Policy 805 Gerard J. van den Berg, Aico van Cardoso, Miguel Portela 820 Christopher M. Cornwell, Kyung Hee Vuuren Recruitment and Pay at the Establishment Lee, David B. Mustard The Effect of Search Frictions on Wages Level: Gender Segregation and the Wage The Effects of Merit-Based Financial Aid on 804 Jaap Abbring Gap in Portugal Course Enrollment, Withdrawal and Dynamic Econometric Program Evaluation 788 Felix Büchel, Joachim R. Frick Completion in College 803 Rafael Lalive Immigrants in the UK and in West Germany 819 Michel Beine, Frédéric Docquier, Social Interactions in Unemployment – Relative Income Position, Income Hillel Rapoport 802 Heather Antecol, Peter Kuhn, Stephen Portfolio, and Redistribution Effects Brain Drain and LDCs’ Growth: Winners and Trejo 787 Pietro Garibaldi, Lia Pacelli, Andrea Losers Assimilation via Prices or Quantities? Labor Borgarello 818 John Pencavel Market Institutions and Immigrant Earnings Employment Protection Legislation and the The Surprising Retreat of Union Britain Growth in Australia, Canada, and the United Size of Firms 817 Torben Andersen, Tryggvi Thor States 786 Peter R. Mueser, Kenneth Troske, Herbertsson 801 Andrey Launov Alexey Gorislavsky Measuring Globalization A Study of the Austrian Labor Market Using State Administrative Data to Measure 816 Tryggvi Thor Herbertsson, Michael Dynamics Using a Model of Search Program Performance Orszag Equilibrium 785 Rita K. Almeida The Early Retirement Burden: Assessing the 800 Thomas Beissinger, Christoph Knoppik The Effects of Foreign Owned Firms on the Costs of the Continued Prevalence of Early Sind Nominallöhne starr? Neuere Evidenz und Labor Market 2 Retirement in OECD Countries wirtschaftspolitische Implikationen 784 Olivier Pierrard, Henri Sneessens 815 Arild Aakvik, Kjell G. Salvanes, Kjell 799 Robert A. Hart Low-Skilled Unemployment, Biased Vaage General Human Capital and Employment Technological Shocks and Job Competition Measuring Heterogeneity in the Returns to Adjustment in the Great Depression: Appren- 783 Barry T. Hirsch, Edward J. Education in Norway Using Educational tices and Journeymen in UK Engineering Schumacher Reforms 798 James J. Heckman, Jeffrey A. Smith Match Bias in Wage Gap Estimates Due to 814 Geert Ridder, Gerard J. van den Berg The Determinants of Participation in a Social Earnings Imputation Measuring Labor Market Frictions: A Cross- Program: Evidence from a Prototypical Job 782 Maia Güell, Barbara Petrongolo Country Comparison Training Program How Binding Are Legal Limits? Transitions 813 Edward Lazear 797 Espen Bratberg, Øivind Anti Nilsen, from Temporary to Permanent Work in Firm-Specific Human Capital: A Skill-Weights Kjell Vaage Spain Approach Assessing Changes in Intergenerational 781 Jaap Abbring, Jeffrey R. Campbell 812 John T. Addison, Thorsten Schank, Earnings Mobility A Structural Empirical Model of Firm Claus Schnabel, Joachim Wagner 796 Patricia Apps Growth, Learning, and Survival German Works Councils in the Production Gender, Time Use and Models of the Process Household

IZA GUEST RESEARCHERS From May until July 2003 the following renowned economists stayed at IZA to discuss issues of labor market research and policy:

Patricia Apps Daniel S. Hamermesh David Ribar (University of Sydney) (University of Texas, Austin) (George Washington University, Washington DC) Michael L. Bognanno Barton H. Hamilton Álmos Telegdy (Temple University, Philadelphia) (Washington University, St. Louis) (Central European University, Budapest) Carmel U. Chiswick Ashok Kaul Manuelita Ureta (University of Illinois, Chicago) (University Pompeu Fabra, Barcelona) (Texas A&M University, College Station) Barry R. Chiswick David B. Mustard Edward Vytlacil (University of Illinois, Chicago) (University of Georgia, Athens) (Stanford University) Leif Danziger Shoshana Neuman Till von Wachter (York University, Toronto) (Bar-Ilan University, Ramat-Gan) (University of California, Berkeley) Don J. DeVoretz Solomon Polachek (Simon Fraser University, Burnaby) (Binghamton University, New York) 14 IZA COMPACT July/August 2003

OPINION Germany’s Unions – Ready for a Fresh Start?

while the current head of the IG Metall and reform. This form of agreement, which is al- his deputy, who is eager to succeed him in of- ready quite ineffective in eastern Germany due fice, are staging a public showdown that to a lack of acceptance, has further suffered leaves the audience with the impression of a from the IG Metall’s defeat in the recent ne- badly hit IG Metall staggering into an uncer- gotiations. This is despite the numerous ad- tain future without a leader or a concept. In vantages of industry-wide agreements, such the end, the boss resigns. Although he does as allowing firms to plan more reliably, saving not leave without reiterating his call for re- the economic cost of firm-level wage determi- form, the pre-agreed personnel decisions are nation, and increasing the chance that the ne- foreshadowing an adherence to traditional- gotiating parties give thought to the economy ism. as a whole. Abandoning centralized wage ne- gotiations would most likely result in more So where are the German unions headed? strikes. Their current power is based upon their bargaining autonomy, as symbolized by the in- How will the drama end? The script for the dustry-wide collective agreements, their inte- final act will mainly depend on the behavior gration in the decision-making structures on of the unions themselves. They will have to the firm level in the form of co-determination summon the strength to get back on track and works councils, and their notion of repre- and finally give adequate attention to the in- senting all union members politically. The leg- terests of those whose labor market prospects islators have not only transferred most of the should be their main focus, namely the unem- responsibility for organizing the working ployed. world to the collective bargaining parties, but The current crisis of the German Metalwork- they have also accepted for quite some time The unions are currently running the risk of ers’ Union (IG Metall) has startled many ob- that these institutions are striving to influence disqualifying themselves as negotiating part- servers at home and abroad. It appears as if the political process on all levels. ners. The recent defeat of the IG Metall can the power of the German unions, which is hardly be expected to increase the employer quite significant by international standards, is But times have definitely changed. The mod- associations’ willingness to negotiate. Now is beginning to erode. This could be a good op- ern working world has different rules, which the time for the unions to completely mod- portunity to adopt a “new modesty” in the leave no room for the unions’ outdated friend ernize their structures, redesign their strate- face of scandalously high unemployment and enemy concepts. The majority of workers gies, and adopt a policy based on economic rates. are no longer subject to the traditional work- reason. This would imply, for instance, a re- ing-time scheme, and firms are increasingly turn to longer and more flexible working The first act of the play: The IG Metall, for- introducing flexible wage models. At the same hours as well as lower minimum wages for merly the most powerful single trade union in time, the aging of the working population low-skilled workers. Industry-wide collective the world, goes down with all flags flying for dries up the union’s supply of new blood. The agreements will only be able to survive if the first time in an industrial dispute. Against trend towards individualization further re- opening clauses allow individual firms to opt all economic reason, the union had attempt- duces people’s willingness to become orga- out under certain circumstances, and if the ed to reduce the eastern German workweek of nized and mobilized. The decline in member- agreements are no longer legally extended to currently 38 hours by eight percent to the level ship and the damaged public reputation on non-organized firms. This would allow for of 35 hours as it is in effect in the western part the one hand, and the erosion of political in- more innovation and creativity in a far too of the country. Eventually, however, union fluence on the other, are the consequences of rigid system. The ball is now in the unions’ leaders had to retreat and content themselves a backward-looking union policy. This is most backcourt. What they need is a key player who with an agreement delaying the implementa- evident in the failure of union opposition knows how to handle it. tion of their demands until 2009. against the government’s Agenda 2010 reform proposals in Germany and the pension In the second act of the play, the historic sur- reform in France. render aggravates the fight over the direction of the union, particularly with a change in As a result, the institution of industry-wide leadership coming up this fall. Previously collective agreements itself has moved to the made personnel decisions are being contested center of the debate on labor market policy

IMPRINT Editor: Prof. Dr. Klaus F. Zimmermann Managing Editor: Holger Hinte IZA, P.O. Box 7240, 53072 Bonn, Germany Tel. +49 (228) 38 94 222, Fax +49 (228) 38 94 180 e-mail: [email protected] Institute for Graphics/Photographs: IZA the Study Layout/Printing: Verlag Erik Dynowski, of Labor Cologne, Germany