IZA Tower Talk - Report

Hans Barbier at IZA Tower Talk: Correcting the major flaw in economic policy
Now head of the Ludwig Erhard Foundation, the former economics editor of the FAZ newspaper remains as poignant a commentator as ever: "Germans don’t work enough", claimed Hans Barbier at the 7th IZA Tower Talk, which took place at the Post Tower in Bonn on October 12, 2004. He deplored the long series of fundamental flaws in German labor and social policy, which have lowered people’s appreciation of the value of work in our modern welfare society.	Barbier, Schneider
Barbier demanded that the upcoming labor market reforms should raise the value of work again by providing effective incentive mechanisms. A society of free citizens acting upon their individual initiative must fulfill its responsibility to support those in need, he said. But it should not de facto subsidize those who occupy a "grey area between unemployment insurance and welfare receipt," those who choose - in a perfectly rational way, given the current system - not to work even though they could. According to Barbier, the "Hartz IV" reforms, which bundle unemployment and welfare benefits together, finally aim at correcting the major flaw in economic policymaking. In order to be effective, however, the reforms should include stricter requirements for accepting less attractive jobs. Otherwise "this country may not recover for a long time," Barbier warned. In order to increase cost-consciousness, he suggested that the old unemployment insurance system be replaced over the medium term with a mandatory insurance against basic risks, complemented by an additional private insurance. This view was shared by Hilmar Schneider, IZA Director of Labor Policy, who also agreed with Barbier that the misguided trend towards early retirement must be reversed. Meanwhile, demographic change requires a substantial redesign of old-age insurance and healthcare. "We have to learn again how to save for retirement", argued Barbier in favor of a capital-funded pension scheme. At the same time he called for the introduction of flat-rate "health premiums" in combination with tax-financed subsidies for the disadvantaged. "In reality our system of "solidarity" has long lost touch with the meaning of solidarity," Barbier contended. Only if work played a prominent role in rediscovering the notion of citizenry, social solidarity would get a fresh chance in Germany. In this regard, Barbier called on the elites to set a good example.