Wage Subsidies in Germany: The Case of Kombilohn

By Brigitte Lestrade

English

Until 1998, wage subsidies were practically unknown in Germany. Chancellor Schröder’s government introduced them as pilot project as part of the Employment Pact. Since March 2002, the practice has become generalized in Germany. The mechanism, known as the Mainz model, aims to promote job creation by subsidizing mandatory contributions to the social security system. This paper reviews first the specific features of unemployment in Germany. It focuses on long-term unemployment, which the Mainz model is supposed to remedy. It then presents the different pilot projects launched since 1999, and it examines the Mainz model, which was introduced countrywide in a hurry without regard for taking stock of the previous experience. Most labor experts are critical, often severely, about this pilot project, which was chosen by the government to be duplicated nationwide. This review will help us to understand the attitude of German people, which is far more reticent toward wage subsidies than in other industrial countries and in France and Great Britain in particular.

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