Options for Reforming the Basic Security Benefit System for the Gainfully Employed

Tasks

The current german system of basic security for those gainfully employed is regarded as inefficient and too complex and is subject to numerous criticisms. The transfer payments of the SGB II are insufficiently coordinated with the benefits of the child supplement and the housing benefit. Added to this is the perceived complexity and stigmatisation of the application process, which prevents people from making use of it. Incentives to work are hampered by sometimes very high effective marginal loads. For families and single parents, the current instruments of passive labour market policy fail to achieve the goal of encouraging people to take up work. At the same time, the level of basic security is subject to criticism that it is too low to fulfil its original task of securing the minimum subsistence level. Against this background, various reform proposals have been drawn up in recent months on how the current instruments can be redesigned.

Methods

Most reform proposals have in common that the child supplement and the housing benefit are transferred together with Hartz IV into a universal transfer service, which also modifies the supplementary income rules of Hartz IV. However, there are numerous degrees of freedom in the design of such a universal transfer benefit that need to be defined. These include not only the amount of the basic benefit, but also the structure of the transfer withdrawal, i.e. the reduction of benefits for independently earned income. Thus, allowances can be granted or transfers can be withdrawn with the income. The more generous social benefits are granted, the greater the drop in individual incentives to work, while public spending increases.

The extent to which the various components of basic social security have an effect on this welfare state dilemma can only be understood to a limited extent due to the complex interrelationships. This brief expertise is intended to illuminate precisely these interactions between the various components of a universal transfer payment and the socio-political targets.

Data and other sources

The Socio-Economic Panel (SOEP) serves as the data basis for the simulation. The representative sample of the population comprises over 20,000 people in around 11,000 households.

Results

The short expertise presented here examines various building blocks of a possible Hartz IV reform. It becomes apparent that the exact design of actual reforms depends strongly on the political objectives. A combination of the different variants for different household types, as provided for in the ifo proposal, makes sense in order to combine the advantages and disadvantages of the reform blocks. The available expertise now makes it possible to weigh up the corresponding targets against each other and to select the "optimal" parameter constellation.