Reform of the regulations on marginal employment lacks cohesion

Conclusion

If the federal government is concerned to avoid restricting labour market dynamics in the low-income segment, it should seek a solution that tears down the ‘wall’ represented by the ceiling on marginal employment. This is not achieved by the envisaged reform concept.

In fact the way forward was set out in the new government’s coalition agreement. There the government’s intention is expressed to incorporate all forms of paid employment, i.e. including self-employed activities, into the social insurance system. This would tear down the wall consisting of a high marginal tax and contribution burden that still blocks the transition from marginal work to regular part-time employment. Yet this would also require the courage to abolish flat-rate taxation in favour of an extension of individual income taxation. It seems that such a reform—as is the case with a comprehensive concept for a re-regulation of the labour market and a reform of social security—cannot be implemented in the short run. Consequently, the reform of marginal employment should be placed on the agenda of the ‘Alliance for Jobs’: these tripartite talks between employers, unions and the government, that are to be chaired by the Chancellor personally, should serve not only to bring about a reduction in German unemployment in the short-term, but also to find new, sustainable regulations for the labour market and social security. One advantage, at least, of the proposed reform of marginal employment is that it is in fact so marginal that it will not constitute an obstacle to a more comprehensive reform.