Behind the German jobs miracle, the Jobs Centers (Bundesagentur für Arbeit, or BA) with the motto “Challenge and encourage”

The year is 2003. Unemployment in Germany has hit 4.5 million, a rate of 10.5 percent. The federal employment agency (Bundesagentur für Arbeit, or BA), Germany’s largest government agency, with more than 90,000 employees at that time, stands accused of doing little more than tallying this figure. It is perceived as a bureaucratic monstrosity, so inefficient that it struggles to survive on the budget provided by taxpayers’ unemployment insurance premiums. It is seen as a black hole, completely dependent on government handouts.

To deal with the situation, the Social Democrat–Green Party coalition government, led by Chancellor Gerhard Schröder, passes the “Hartz laws,” initiating what may be the most substantial labor-market overhaul ever undertaken in Germany. “Challenge and encourage” is the motto under which job seekers—including welfare recipients, who had previously been invisible in unemployment statistics—will be mobilized, using all of the measures at the government’s disposal. The goal is to integrate customers into the workforce faster and in a more targeted way, shortening the duration of unemployment and accelerating the hiring process. More intensive mobilization measures, along with work incentives and entitlement cuts, are designed to encourage the unemployed to reenter the workforce.

Under tremendous political pressure, the BA was forced to undergo a dramatic transformation from a legalistic administrative body into a modern, performance-driven service provider. Extensive process overhauls and structural reorganization were necessary for the BA to become a highly effective broker between supply and demand. Reforms had to be comprehensive, yet sustainable. And, as we know today, they had to be crisis proof.

It was a complex process. During the initial phase, from 2004 to 2006, management approaches and structures were revamped, with a new emphasis on impact, profitability, and decentralized decision making. Acting on the maxim that structure follows strategy, the agency focused primarily on advisory services and job placement in designing structural reform. Anything that was not a part of this core business was outsourced.

In each of the main 178 local employment agencies, workflows were more closely tailored to customer needs. As part of the new customer-centered business model, job seekers were directed to the appropriate staff in a more straightforward way and, more important, appointments for advisory services were scheduled. As a result, waiting times of an hour or more and overflowing corridors became a thing of the past. New profiling tools were introduced, enabling agency staff to pursue individualized approaches that focused on customer strengths.

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via Behind the German jobs miracle | McKinsey & Company.