Basic Security System

In 2002, the ifo Institute compared this incentive problem with the concept of "activating social welfare". The Hartz Commission and subsequent legislation influenced the core idea behind it, which is that people should have "more money for participation and less money for staying away". With Agenda 2010 and the Hartz IV system, significant reforms came in that moved away from wage replacement and toward wage subsidization. This reform was a step in the right direction, but it did not go far enough.

The ifo proposal for reforming the basic security system aims to improve performance incentives in the lower income brackets and remove barriers to earning income. Key elements involve reducing the marginal burden, combining unemployment benefit II transfer payments to include accommodation costs, housing benefit and child benefit supplement, as well as increasing the amount of assets that are disregarded when calculating the level of a person's unemployment benefit II, depending on the individual's employment history.