With empty funds, the German ‘OAED’ faces the worsening of the energy crisis

Former SPD leader Nahles takes up her new position as head of the Labor Organization on Monday. The challenges could not be greater, according to Handelsblatt.

When Detlef Scheele took over as head of the Federal Employment Agency (BA) in April 2017, Germany was still a different country. The biggest challenge was finding work for hundreds of thousands of refugees. Fewer than 2.6 million people were registered as unemployed, about half the record level since 2005. Only the number of long-term unemployed stood as the lead at about one million.

When Andrea Nahles, the former labor minister, takes over as chairman of BA’s board on Monday, it will be a different world. Germany looks back on more than two years of the pandemic, during which the labor market survived without problems. But with Russia’s attack on Ukraine and the resulting supply chain problems and price spikes, there are risks that are hard to quantify.

“Ms Nahles and the entire BA board face enormous challenges in the coming years,” says Christina Ramb, chairman of the board of the federal agency. Dealing with the coronavirus crisis, the consequences of the war in Ukraine, shaping structural changes, securing jobs and a skilled workforce, as well as lessons from the coalition agreement are just some of the important issues, Rabb said. who is a member of the executive board of the employers’ association BDA.

The consequences of the pandemic have now been largely overcome. “In general, the labor market situation is very stable,” says Holger Schäfer of the Institute for German Economics (IW), which is linked to employers. In May, the number of people employed was already well above the pre-crisis level of around 45.5 million.

Since the peak of the third wave of the coronavirus in spring 2021, employment has grown largely unaffected by further waves of infection and so far also by the consequences of the war in Ukraine, the Federal Statistical Office said. Unemployment has recently risen again, but this is mainly due to the registration of refugees from Ukraine.

The employment office has exhausted its reserves

But no one knows what economic consequences the war in Ukraine will have and its results. Even in the event of a gas supply freeze, however, he does not expect 6 million short-time workers again, as at the time of the national lockout at the height of the pandemic in April 2020, says IW Schäfer expert.

“Because an embargo would mostly hit industry.” To deal with the pandemic, the Federal Employment Agency has spent 52 billion euros. The 157 million euros budgeted for short-time work for the entire year 2019 was temporarily lost in one day in 2020, says the head of the financial department of the Nuremberg agency, Christiane Schönefeld, in an interview with Handelsblatt.

The reserve of once almost 26 billion euros is gone. This year, the federal government will probably have to provide another 2 billion euros to cover the expected shortfall. And as things appear, unlike the two previous years, the aid will only be granted as a loan.

The new president of the Federal Employment Agency and former head of the SPD Nahles thus faces the problem that the crisis intervention fund is empty. “Under optimal conditions, we are able to return to positive results next year and repay the loan,” says Schönefeld. “If there is another crisis or, say, a freeze on the natural gas supply, the issue of the loan will have to be raised again.”

Labor market experts believe that a reserve of 0.65% of GDP is necessary to mitigate a major economic crisis in the labor market. Currently, this would be just under €23 billion. According to current forecasts, the Federal Employment Service will not have created a 15 billion euro cushion until 2026 under optimal labor market conditions.

Nevertheless, Schönefeld believes that it would be right to increase the unemployment insurance contribution rate next year only from 2.4% to 2.6%, as predicted: “If we look at the overall development of social security contributions, it would not be a good message to exceed this percentage”.

In addition to a potentially necessary new crisis intervention, Nahles faces two other major construction projects. As Labor Minister, he had already launched the transformation of the Employment Service into a federal employment and qualifications agency. The aim is to accompany the transformation of the economy and address the lack of skilled workers.

The idea is to prepare workers whose jobs no longer have a future – for example in lignite mining or the production of internal combustion engines – for new tasks, without having to register as unemployed in the meantime. There are pilot projects in the Rhineland mining area, for example, where the Brühl employment office is trying to find new prospects for lignite workers in the chemical belt around Cologne.

The sum of €900 million has been earmarked in this year’s budget for the training of workers – around €300 million more than last year. But is this not a lot of money, in view of the expected total expenditure of 38 billion euros? In addition to money, they also need employers who offer training and workers who want to continue their education, says Schönefeld.

He also sees a second problem in the Skilling Opportunities Act, with which the Grand Coalition wanted to promote further training for workers. While this was “well thought out”, it was “quite complicated” for the companies, says the BA board member. “We would like to see simplifications here.”

One problem: Long-term unemployment

A problem that was already one of Scheele’s main areas of concern will once again concern Nahles: long-term unemployment. Thanks to new funding opportunities and a healthy economy, the number of people out of work for more than a year had fallen to just over 700,000 by the start of the pandemic. However, in 2021, on average, the one million mark was broken again – today the number is still around 900,000.

Part of the success is also attributed to the federally funded “social labor market,” which, among other things, provides wage subsidies to employers who offer the long-term unemployed a chance in the primary labor market. There has been an uproar recently because Finance Minister Christian Lindner (FDP) wants to cut funding for it from the current €4.8 billion to €4.2 billion.

At the moment, about 42,000 people are supported by this means, says Schönefeld. And this cannot be expanded at will, because jobs and intensive support for the long-term unemployed are also needed. “But we urgently want to be able to continue at the current level.