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With the 'First Act for Modern Services on the Labour Market' (Hartz I), an innovative earnings insurance scheme for older workers was introduced in 2003: anyone above the age of 50 who, in order to end or avoid unemployment, takes up a job paying much less than his/her previous employment, receives part of the difference in pay from the Federal Employment Agency (Bundesagentur für Arbeit) for the period for which unemployment benefit would otherwise have been paid. The scheme is part of a labour market policy aimed at activating older workers, because there is an incentive to take up employment rapidly even if the previous wage level is not reached. This paper is based on an evaluation of the earnings insurance scheme for older workers (Entgeltsicherung) and presents experiences made so far with the programme. In particular we look at the take-up of the subsidy and the effects on the chances of re-employment for older people. Our paper shows that the earnings insurance scheme has been used relatively rarely. This is one of the reasons why little evidence is found that the new programme improves older workers' chances of re-employment. The main cause for the low take-up and the absence of effects seems to be that the programme is not well-known among potential users. This is partly due to the case managers' restraint to use the programme at the local Employment Agencies, unclear and inconsistent regulations regarding the scheme, and the fact that in the majority of cases the compensation of wage losses only partly solves problems to find and accept a new employment. However, the incentive effects of the programme are stronger when larger wage losses occur. |
