A comprehensive reform of Germany’s social welfare system has the potential to increase the total number of working hours across the country by the equivalent of 149,000 full-time positions, according to a new study. Furthermore, public finances could benefit from annual savings of €4.5 billion as a direct result of the proposed changes, the study by the Ifo Institute, commissioned by the Munich and Upper Bavaria Chamber of Industry and Commerce (IHK), reveals.
The reform’s core concept involves consolidating various existing benefits – including unemployment assistance (Bürgergeld), housing allowance (Wohngeld) and child benefits (Kinderzuschlag) – into a single, unified payment. Researchers suggest this streamlined approach would particularly incentivize single individuals to seek and maintain socially insured employment.
“The current system is overly complex and can inadvertently disincentivize work” stated Manfred Gößl, CEO of the Munich and Upper Bavaria IHK. “This study demonstrates that a balanced adjustment to the existing unemployment assistance system is both feasible and urgently needed. Tailored incentives for different household types can lead to significant savings for taxpayers while simultaneously boosting the workforce.
The proposed changes include a tiered system for reducing social benefits as recipients generate income. Single individuals without dependents would be able to retain 35 cents for every euro earned above a gross income of €380 per month. Couples without children would retain 20 cents per euro. Income below this threshold would be fully offset against benefits, effectively leaving recipients with no net gain. The intention is to encourage recipients to pursue full-time, socially insured positions rather than part-time work. Households with children, however, would retain 35 percent of any additional earnings from the first euro onwards. Single parents would also see a significant increase in retained income above the €380 gross monthly threshold.
“The proposed reform simplifies the social security system by consolidating multiple benefits into one” explained Ifo Institute researcher Lilly Fischer. “Differential earnings retention rules enable a targeted increase in labor supply from various demographic groups.
The economic impact anticipates an increase in overall working hours by approximately 230 million annual hours, reinforcing the potential for significant labor market participation. The findings suggest the German government has an opportunity to achieve its stated goals for social reform through decisive action.
