Unemployment benefit: the view from Germany

If you think jobseeker's allowance in Britain is too generous, brace yourself for how the Germans do it
A workerat the Siemens gas turbine factory in Berlin, Germany.btw
A factory worker in Berlin. 'Germany evolved from the sick man of Europe into the strongest, most stable European economy.' Photograph: Sean Gallup/Getty Images

Germans watching the debate about unemployment benefit in the UK have a unique perspective. They've been through their own reform already – but many Britons would be surprised at how generous our system was, and remains, in comparison.

The contributory principle has always been at the heart of German arrangements for unemployment support. Until 2005, Germans who were out of work and in need would receive 60% of the net salary of their last job (67% if they had children), tax free, then after a year, it would go down to 53%. Former chancellor Gerhard Schröder made it his mission to change this system, a programme known as the Hartz reforms. The cutbacks came into force on 1 January 2005. Schroeder was out of government in the autumn of the same year.

Under the reforms, now in their ninth year, the first year of unemployment remains covered by unemployment pay. Those who were in paid employment for at least a year beforehand still receive 60% of their net salary for the first year and 67% if they provide for a family. The big drop now happens afterwards. Instead of receiving about half of their former salaries, single people currently get €391 a month, and a further subsidy of between €229 and €296 for every child, depending on their age. Partners who live together will get €353 each. Costs for rent and heating are covered as well. Any personal savings, though, are taken into account and reduce whatever is paid as an unemployment benefit.

The idea behind these changes was to push people into work. The cutbacks went hand in hand with a reform of labour market laws that was supposed to make it easier for jobseekers to get back into employment. The combination of worse conditions for those who had to exist on unemployment benefits and easier entry into the job market was supposed to reduce the high German unemployment rate. But did it work?

The answer to this question is still the subject of a fierce debate. Yes, say those defending the reforms: just look at the unemployment rate. It has indeed come down since 2005, when it peaked at about 11%, falling to 7.5% in 2008, staying stable during the recession and eventually falling to a record low of 5.5% by the end of 2012.

No, says the opposing camp. The supposed job miracle is a fudge. Instead of being employed full time, people now work in several part-time or so-called "mini jobs".

According to the proponents, thanks to the Hartz reforms real wages in Germany came down and the country became more competitive. Their opponents counter that people are paid so little that often they have to supplement their meagre income through unemployment benefits even if they do have a job.

In any case, the political fallout for the German Social Democrats will make for an uncomfortable subject for Ed Miliband to study. Germans hated the Hartz reforms. The tradition of Monday demonstrations, which 15 years before had brought the GDR to its knees, was revived. This time the demonstrators raged against what they called social destruction. Schroeder's SPD not only lost the elections in September 2005, the controversy about the reforms also split the party. Subsequently, Die Linke (The Left) emerged as an independent party that ever since eats into the electorate of the Social Democrats.

Nine years on, though, the Hartz reforms are increasingly seen as a success story. Germany evolved from the sick man of Europe into the strongest, most stable European economy. The SPD, however, still feels uncomfortable with the legacy. Angela Merkel, on the other hand, who first dismissed the ideas, has come out on top, using the reforms to paint a picture of Germany as the model for others to follow.