Enhancing or Limiting Labor Supply? An Analysis of German Employers’ Perceptions of Work Incentives in Social Policy

Abstract

Public social benefits can, depending on their design, either reduce or strengthen work incentives. Benefits that provide an alternative to earned income weaken work incentives, benefits that require recipients to seek and accept work strengthen them. On the basis of six historical case studies, this paper analyses how the peak federations of German employers perceived the impact of public social programs on work incentives and how these perceptions changed over time. The paper shows how employers’ assessments of the importance of work incentives changed over time: They perceived the negative work incentives created by social programs either as positive or as negative, depending on labor market conditions and experiences with social programs made in earlier periods. During the debates leading to the adoption of new social insurance programs, employers feared that the new benefits would undermine work incentives when those programs would benefit persons fit to work, but not when programs would benefit the sick or injured. Consequently, unemployment insurance was the program employers opposed most strongly. Later, during the 1970s and 1980s, when firms faced over-staffing, employers did however come to welcome a weakening of work incentives.