Unemployment, Self-Employment and Bridging Allowance

  • Frank Reize
Part of the ZEW Economic Studies book series (ZEW, volume 25)


In Germany, the last two decades have been characterised by a high and increasing number of unemployed people (see Figure 1).4 The number of unemployed rose sharply three times. The first increase was in the mid-1970s after the first oil price shock. At the beginning of the 1980s due to several reasons, among them the second oil price shock, the number of unemployed people again increased from around 900,000 to about 2.3 million. During the 1980s the unemployment rate remained fairly stable, it even decreased slowly. After the reunification in 1990 the unemployment rate for West Germany decreased significantly but came back to its previous level during the recession of 1992/93. The total number of unemployed increased sharply after the reunification. Hence, the eastern parts accounted for approximately 1.1 to 1.3 million of the unemployed. The number of unemployed reached its peak in 1997 with nearly 4.5 million people, whereas over 3 million lived in the old federal states.
Figure 1

Trends in Unemployment and Self-Employment in Germany


Unemployment Rate Unemployment Benefit Unemployed People Unemployed Person Active Labour Market Policy 
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  1. 4.
    There are several definitions for the number of unemployed and the unemployment rate, respectively (see e.g. Franz, 2003). In the following the definition of the Federal Employment Services (Bundesanstalt für Arbeit) is used except for international comparisons where the OECD definition is employed. According to the Federal Em-ployment Services a person is regarded as unemployed if he or she is registered as unemployed. Then, the unemployment rate is defined as the ratio of the number of unemployed and the number of dependent employees. In contrast, the OECD defini-tion regards someone as unemployed if he or she is seeking and being available for a job, no matter whether he or she is registered as unemployed or not. The OECD un-employment rate is defined with the number of employed people as the denominator.Google Scholar
  2. 5.
    A self-employed person is defined as a person in work, who is running a business as owner, co-owner or tenant on his own responsibility and not subjected to instructions and who is responsible for the development and outcome of the business (see Pfeiffer, 1994). Similar definitions are employed by the surveys of the Micro-census and the German Socio-Economic Panel (see Section 6.4.1). It should be well noted that the economic definition may vary from the legal definition (see Section 2.2.2).Google Scholar
  3. 6.
    See Pfeiffer (1994) for an extensive discussion on trends in self-employment for Germany and in the international context. See also Reize (2002) for an analysis of the determinants of self-employment in Europe.Google Scholar
  4. 7.
    The self-employment rate in the former GDR was extremely low at around 2% (Pfeiffer, 1994).Google Scholar
  5. 8.
    For a detailed discussion of the QUERU model see e.g. Calmfors and Holmlund (2000), Franz (1996) or Lindbeck (1993). A detailed description of the NAIRU model can be found at e.g. Landmann and Jerger (1999) or Franz (2003).Google Scholar
  6. 9.
    See Franz (2003) for a more detailed discussion.Google Scholar
  7. 10.
    See Franz (1993) for a detailed discussion.Google Scholar
  8. 11.
    See also the OECD Employment Outlook (2000) for an extensive discussion of trends in self-employment in the international context.Google Scholar
  9. 12.
    There are several concepts to differentiate between employment and self-employment: “subjection to instructions”, “entrepreneurial risk”, “liability to pay contributions to the social insurance” (see Dietrich, 1998). Since January 1, 1999, a person is viewed as a dependent employee rather than self-employed if three of five legal criteria are met: e.g. the business is run without additional employees for which contributions to the social securities are paid, there is only one regular and permanent customer, and the customer has these jobs carried out also by employees (see Berndt, 2000).Google Scholar
  10. 13.
    Until 1998 there was no legal regulation. The Federal Labour Court used the terminus of “subjected to instructions” to define dependent employment. See also footnote above.Google Scholar
  11. 14.
    See e.g. Meager, 1993 or Chapter 5 for more details.Google Scholar
  12. 15.
    Beside Germany, several other industrialised countries introduced similar programmes to promote transitions from unemployment to self-employment. These countries are: Australia, Belgium, Canada, Denmark, Finland, France, Greece, Great Britain, Ireland, Luxembourg, the Netherlands, Norway, Portugal, Sweden and the United States (OECD, 1995).Google Scholar
  13. 16.
    This figure is based on own calculation with the German Socio-Economic Panel. See Pannenberg (1998) for similar numbers obtained on the same database or Wießner (2001) for results on the calculations of the Institut für Mittelstandsforschung, Bonn.Google Scholar
  14. 17.
    There is no legal right to the payment of bridging allowance (in accordance with the 3rd Social Security Code). In fact the payment as well as the amount of payment are subjected to a discretionary decision of the legal labour market office.Google Scholar
  15. 18.
    Until January 1, 1998, the legal foundation was §55a of the Labour Promotion Law (AFG).Google Scholar
  16. 19.
    For a more detailed discussion on the legal regulations of bridging allowance, see Kaiser and Otto (1990), Brinkmann and Otto (1996), and Wießner (1998, 2001).Google Scholar
  17. 20.
    Since 1993 also people threatened by unemployment, i.e. workers with reduced hours and employees who have participated in work creation measures according to §§260 ff. SGB III and §91 to 96 AFG or measures according to §249h and §242s AFG (lump sum wage subsidies) are eligible for subsidisation with bridging allow-ance. The latter measures support the reintegration of unemployed people by financ-ing environmental protection, social and youth work, especially in East Germany.Google Scholar
  18. 21.
    In 1997 the regional labour offices were authorised to restrict the amount as well as the duration of payment if the funds were not sufficient. On August 1, 1999 bridging allowance was slightly extended. Since then bridging allowance is also paid if the self-employment does not immediately start after the exhaustion of the entitlement to the unemployment benefits (see Wießner, 2001).Google Scholar
  19. 22.
    However, the importance of bridging allowance is relatively low compared to training measures. In 1996, the expenditure for active labour market policy amounted to 41.2 billion DM altogether. One billion DM was spent on bridging allowance compared to almost 18 billion DM spent on training measures.Google Scholar
  20. 23.
    Start-ups are promoted in Germany by over 100 programmes and much more local initiatives. The two quantitatively most important programmes are the bridging al-lowances scheme and the loan programmes for start-ups from the DtA. The DtA sup-ported more than 45,000 start-ups in 1997 (Struck, 1998).Google Scholar
  21. 24.
    The legal entitlement to unemployment benefits lasts for four years from the begin-ning of the entitlement period. Therefore, a bridging allowance recipient has the opportunity to receive unemployment benefits again. E.g. if the first entitlement period of unemployment benefits lasted one year, followed by a half year of subsidisation with bridging allowance, then the formerly unemployed has the opportunity to re-ceive unemployment benefits during the next 2.5 years.Google Scholar
  22. 25.
    See Chapter 6 for more details on the determinants of self-employment.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2004

Authors and Affiliations

  • Frank Reize
    • 1
  1. 1.KfW BankengruppeKSb Volkswirtschaftliche AbteilungFrankfurt am MainGermany

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