Reforming German Labor Market Institutions: A Dual Path to Flexibility

33 Pages Posted: 7 Apr 2009

See all articles by Werner Eichhorst

Werner Eichhorst

Institute for the Study of Labor (IZA)

Paul Marx

IZA Institute of Labor Economics

Abstract

Germany has always been one of the prime examples of institutional complementarities between social insurance, a rather passive welfare state, strong employment protection and collective bargaining that stabilize diversified quality production. This institutional arrangement was criticized for being the main cause of inferior labor market performance and increasing fiscal pressure on the welfare state while at the same time inhibiting institutional change. However, over the last 15 years, a sequence of institutional reforms has fundamentally modified the functioning of the German labor market and increased both flexibility and job creation capacities through two intimately linked processes that redefined the line between inactivity, the flexible and the standard segment of the labor market. On the one hand, policy changes facilitated the expansion of flexible or 'atypical' jobs, whereas increasing flexibility of the standard employment relationship resulted from wage moderation and working time flexibility. While at the outset of this reform sequence German had a small, but relatively egalitarian labor market, the number of jobs, but also their diversity has increased.

Keywords: Germany, labor market reforms, atypical employment, standard employment relationship

JEL Classification: J38, J51, J41

Suggested Citation

Eichhorst, Werner and Marx, Paul, Reforming German Labor Market Institutions: A Dual Path to Flexibility. IZA Discussion Paper No. 4100. Available at SSRN: https://ssrn.com/abstract=1373334

Werner Eichhorst (Contact Author)

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Paul Marx

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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