Committee on Economic Security (CES)
Volume I. Unemployment Compensation
Other Staff Reports
UNEMPLOYMENT INSURANCE IN GERMANY
Jeanne C. Barber
An act of July 18, 1927, first established the system of unemployment insurance in Germany. There have been numerous amending acts since which have substantially altered the early provisions. Two kinds of benefits were provided for in the law: ordinary benefit based on the fulfillment of eligibility requirements, and emergency benefit for those who have drawn ordinary benefits to the limit allowed, Supplementing the unemployment insurance system is local poor relief.
Originally, coverage for ordinary benefit was broader then that for emergency benefit but the extension of the scope of the latter has brought practically the same groups under both types. The 1927 law allowed all persons covered by the various systems of health insurance to participate in unemployment insurance. There were certain exclusions even at the start, because of possible administrative difficulties; a few of these were certain agricultural workers, forestry and fishery workers, some casual workers, etc. Later, other groups were excluded for reasons of economy, such as home workers, persons working for relatives or in petty employment, and persons on relief work. From the standpoint of numbers the most significant exclusions were agricultural workers previously covered and female domestic servants, who were dropped out by the Nazi government. Earnings over a certain limit exclude workers from compulsory insurance although they can insure voluntarily. No age limits are established under the law, the provision being that wage earners over school age are covered.
Definition of Unemployment
All types of unemployment are benefited: total, short time and seasonal. Persons who are no longer in an employment relationship are considered totally unemployed. Short time unemployment was first defined as reduction in earnings in any calendar week due to lack of work. Later regulations restricted payments for this type of unemployment to industrial workers in plants regularly employing ten or more persons, whose wages were reduced by enforced idleness of at least three full days in a calendar week or six days in two weeks.
The original law required a waiting period of seven days after the individual first registered as unemployed, which was canceled under certain conditions.
In 1929, waiting periods based on age and family responsibilities were introduced; these varied from fourteen to three days. They could be reduced or abolished entirely in certain cases. If the employment before registration was less than six consecutive weeks, the waiting period could be cut by the number of days waiting that had preceded the last employment. This provision was intended to encourage the acceptance of work for short periods. Variations in the waiting period were made in succeeding years. The age qualification were dropped in 1930 and in 193l the periods
were lengthened to effect economies but since December, 1933, except for the age restrictions, they have been on the 1929 basis.
ELIGIBILITY FOR BENEFIT
Requirements for ordinary benefit include, primarily, completion of the qualifying period, registration at an employment office, ability and willingness to work and acceptance of suitable work. Other provisions have been added from time to time. The most important of the later provisions is the application of the need or means test during the statutory benefit period.
The performance of “socially useful work" when available, always demanded of persons under twenty one, was required of all persons receiving benefit, by an order of June 5, 1931. Special provisions for seasonal workers have been put into effect from time to time as safeguards against their receiving a disproportionate share of benefits.
Emergency benefit was first paid to all insured persons, except aliens, in certain districts or occupations determined by the Minister of Labor, who had exhausted their right to benefit or who had not completed the qualifying period, and were in need. In 1930, the regulations embraced all insured persons in need in localities of a certain size, and an elaborate method for testing need was worked out. The definitions of need have been revised since, and the application of the test to insured persons eligible for ordinary benefit introduces relief elements which were originally absent.
SOURCE OF INCOME
Ordinary benefit was at first provided for only by equal contributions from employers and employees but due to the inadequacy of funds and after several increases in contribution rates a special tax was levied on all incomes. Originally, emergency benefit was financed by the federal and local governments, four fifths and one fifth respectively, but since October, 1933, the entire cost of emergency benefit has been paid from the funds of the federal Institution. (1)
(1) The organization that administers unemployment insurance.
Contributions were set by the original act as 3 per cent of wages derived equally from employers and employees. This was soon deemed inadequate and the rate was increased gradually until it now stands at 6 1/2 per cent. The Federal Institution was empowered to increase contributions, but instead the special income tax was levied. The legal basis of this tax has been changed more than once but is still in effect.
Administration expenses of the Federal Institution are paid from contributions.
The principle of relating benefits to wages was established in the 1927 law and has been adhered to throughout in spite of reductions in benefits from time to time. Eleven wage classes were set up originally and benefits were expressed as a percentage of standard wage in each class. Benefits ranged from 73 per cent for those in the lowest wage class to 35 per cent in the highest classes.
Allowances were paid for dependents at the rate of 5 per cent of the standard wage for each dependent, with certain set maximums.
Benefits have been reduced in many ways since 1927 by issuing stricter eligibility requirements and by the actual cutting of all rates. The duration was first set at twenty six weeks, was later reduced to twenty weeks, and, since the application of the means test during the statutory benefit period, the duration of benefit varies between individuals.
In 1932 instead of the single benefit scale based on the wage classes for the whole country, three scales were introduced taking into account the cost of living in various sized communities. This was another economy measure.
There are special regulations for seasonal and short time workers and workers in casual employment. In the last category only dock workers are covered. Supplementary benefits are paid under certain conditions.
The provisions governing emergency benefit were drafted mostly at the discretion of the Minister of Labor. Originally, the period allowed for this benefit was thirteen weeks, was extended later to twenty six and again to thirty nine weeks. Persons over forty under certain circumstances were allowed benefit for fifty two weeks. Beginning October, 1930, expenditures reached such proportions that these generous provisions had to be changed. The period was reduced to forty five weeks for those over forty and thirty-two weeks for all others. Rates were also reduced and altogether the aid rendered became so inadequate that the benefit period was again increased by seven weeks and later need rather than time became the limiting factor. Special provisions were passed for seasonal workers.
ADMINISTRATION OF UNEMPLOYMENT INSURANCE IN GERMANY ADMINISTRATIVE BODIES
The Federal Institution for Placement and Unemployment Insurance, a semiautonomous body under the Ministry of Labor, administers unemployment insurance as one of its activities. The Institution is made up of the headquarters, thirteen district employment offices, and 360 local employment offices to which are attached subsidiary offices of three kinds. Each office has three departments: administration, placement, and unemployment insurance.
The ten thousand local health insurance offices collect contributions for unemployment insurance.
The local welfare authorities determine whether or not the claimant is in need.
ESTABLISHMENT OF RIGHT TO BENEFIT
To quality for benefit an unemployed worker must register in the placement department of an employment office where he receives a control or report card. The qualifying period, waiting period and duration of benefit all date from the time of this registration.
The case is transferred to the unemployment insurance department if the man cannot be placed immediately. The unemployed person then fills out an application blank for unemployment insurance that gives information needed to determine eligibility. A new application blank is filled out each time a new benefit period begins, that is, at the completion of a new qualifying period. The claimant presents a certificate or certificates from the previous employer or employers, giving wage experiences needed for computing benefit rates.
After the application blank is filed, investigation of the prerequisites for receipt of benefit are inaugurated. These requirements are checked frequently throughout the period of unemployment. Ability to work is assumed if the person has been working, but on occasion a medical examination may be required. The employer’s certificate supplies information as to whether loss of work was involuntary. Willingness to work can only be determined by an offer of a job from the placement department. When an unemployed person applies for benefit he is informed of the various conditions under which he may and may not refuse employment without forfeiting his right to benefit. Fulfillment of the qualifying period is determined from the employer's certificate.
Since even persons in receipt of ordinary benefit can get it for only six weeks without proving need (according to welfare standards), and all recipients of emergency relief must be in need, the fact of need must be established. The application blank supplies the basic information necessary to prove need. It is examined by employment office officials and the local welfare authorities.
During the waiting period and throughout the duration of benefit payments the beneficiary is required to report three times a week to the placement department or at a subsidiary office unless other arrangements are made. These visits serve the double purpose of proving that the beneficiary is still unemployed and helping him find work.
PAYMENT OF BENEFITS
Benefit rates are computed from the wage data on the employer’s certificate and recorded on a payment order form; the duration is entered on the beneficiary's pay sheet. These sheets are arranged in the order of the pay days to which persons are assigned and alphabetically for each day.
After the fact of reporting has been verified, the amount is entered on a payroll; the claimant signs, and the benefit is paid.
COLLECTION OF CONTRIBUTIONS
Because the health insurance offices were well established in 1927 when the unemployment insurance law became effective, were much more numerous than the employment offices (there are 10,000 of the former) and were familiar with local conditions, they were entrusted with the collection of contributions to unemployment insurance and the necessary administering functions.
The health insurance offices make out reports regularly, showing the number of persons subject to unemployment insurance in their districts. These are arranged according to broad occupational groups.
The local health insurance offices are allowed to decide whether real earnings or an average rate according to wage scales or classes shall be used as the base according to which contributions are calculated. The procedure is simplified if real earnings are the base. In these cases, as a rule, large companies each month compute the salary or wages paid their workers and the corresponding contributions due. The workers are not listed individually but are grouped according to their method of payment, i.e., wage workers, salaried employees, etc. The total amount due for the month in question is payable by postal check, bank cheek, or cash, not later than the seventh day of each month. The employers' statements can be checked against their reports on persons hired, dismissed and changes in rates of pay.
The procedure is different for certain classes of employers such as those hiring domestic servants or a few workers, and in smaller health insurance offices. On the basis of the reports made by the employer as to persons hired and dismissed the office sends the employer a statement indicating the contributions due from him. The office’s statement gives the names of the workers, specifies the number of days of employment for each, their wage class, membership class and the amount due.
The workers’ share of the unemployment insurance contribution is deducted from their wages or salaries. These deductions are equally distributed over the pay periods during which they become due.
REMITTANCE OF CONTRIBUTIONS BY THE HEALTH INSURANCE OFFICE TO THE FEDERAL INSTITUTION
Within three days alter contributions are received they are forwarded by the health insurance office to the district employment office in the locality. A certain amount is held out to pay for the cost of collection.
CIRCULATION OF FUNDS
Local employment offices receive their funds for all purposes from the district employment office weekly. The amount requested by the local office is credited to its account is the nearest Reichsbank branch office. Each day the money needed is drawn out.
District offices receive the collections made by the health insurance offices. If the monthly estimate of requirements indicates that there is a surplus, the money is transferred through the Reichsbank to the headquarters' account with the Federal Treasury. A deficit in any district is covered by the headquarters from this same account. No district office may maintain a credit of more than 1,000 marks from one day to the next.
The headquarters receives directly only the money collected by the Federal Finance Administration; it makes the budget and supervises the financial conduct of the various offices.