# Federal Employment Agency: Nahles Considers Higher Contributions to Unemployment Insurance Possible

At the same time, Nahles made clear that a contribution increase is not the goal. "But we are not pursuing a contribution rate increase," she emphasized. She also acknowledged: "Now we are in a bind ourselves" and added that such a measure could nevertheless become necessary.

Eight-Billion-Euro Deficit

According to its own figures, the Federal Employment Agency is facing a budget deficit of around eight billion euros this year – roughly twice as much as projected in the autumn. In addition, there is at least 1.4 billion euros in deficit being carried over from the previous year, as Nahles explained. The current contribution rate to unemployment insurance is 2.6 percent.

According to Nahles, an increase of 0.1 percentage points would generate additional revenue for the Federal Employment Agency of 1.6 billion euros per year. Such an adjustment would be necessary because the number of recipients of unemployment benefits has risen significantly in recent years and the agency's expenditures have increased sharply as a result. At the same time, the number of recipients of the tax-funded basic benefit, formerly known as citizen's income (Bürgergeld), has noticeably decreased.

Depleted Reserves

Before the coronavirus pandemic, the Federal Employment Agency had built up reserves of 27 billion euros for economically difficult phases. These reserves were largely used up for the payment of short-time work benefits during the pandemic and are no longer available. The federal government had decided at the time "that the short-time work economic program would essentially be financed from unemployment insurance," as Nahles explained.

Andrea Nahles pushed back against the impression that the Federal Employment Agency was inactive. The agency, which itself currently employs around 100,000 people, will also "independently undertake efforts to save." A long-term initiative for digitalization and automation, which is intended to reduce costs, is already underway; further cost-cutting measures are being reviewed. However, Nahles also made clear: "There has never been a situation in the history of unemployment insurance in recent decades where we have reduced staff amid rising unemployment." The people who are now becoming unemployed have paid contributions for years and have a right to be well supported.

The position of the employers' side is clearly opposed. Steffen Kampeter, Managing Director of the Confederation of German Employers' Associations (BDA), strongly rejected contribution increases. "There must be no contribution rate increases," he demanded. He also criticized: "They lead to additional burdens and would therefore be the wrong signal for employees and businesses."

Employers Against Contribution Increase

Kampeter instead called for more incentives for employment as well as a reversal of "shifting of outside costs into unemployment insurance." This refers to costs that do not belong to the insurance's core task but are settled through its budget. The association representative pointed out that contribution increases to social insurance are "equally hated by employers and employees" because they mean "less net from gross."

Despite all the warnings, Nahles does not rule out an increase. Should the Federal Employment Agency be unable to balance its budget through a federal subsidy or a loan, the contribution rate could rise. Nahles also emphasized that the Federal Employment Agency and its contributors had made a contribution to the welfare of the country during the pandemic. With this, she hinted at a political debate about who should bear the costs of short-time work in the future.

It remains unclear to what extent and from when a higher contribution would have to be levied. When asked, Nahles did not name a specific time. She also made clear that the Federal Employment Agency will make its own possible contribution to consolidation before the legislature decides on a contribution adjustment. The debate on this is likely to gain momentum in the coming weeks.

Outlook on the Deliberations

It is certain that the Federal Employment Agency's expenditures for unemployment benefits and short-time work benefits have grown significantly in recent years, while reserves have dwindled. The financial situation is considered serious, as payments to hundreds of thousands of unemployed people must continue to be ensured. At the same time, the agency does not want to reduce its staffing levels, even though, as a federal institution, it must itself adhere to strict budgetary discipline.

Steffen Kampeter sees politicians as being obligated. A contribution increase would be "poison" for the economy and send the wrong incentives in the labor market, warned the employers' representative. Instead, the federal government must consider tax revenues or a reform of financing. The Confederation of German Employers' Associations would position itself accordingly, he announced. Andrea Nahles pointed out that during the coronavirus pandemic, billions had flowed from the reserves of unemployment insurance "so that the short-time work economic program is essentially financed from unemployment insurance."