The director of the Institute of German Economics (IW) in Cologne, Michael Hüther, is supporting Economics Minister Katarina Reiche’s considerations regarding an extension of working lives. In a recent commentary, Hüther argued that a retirement age of 67 may be unsustainable given rising life expectancy. He emphasized that encouraging older individuals to participate in the workforce for a longer period is a crucial element in ensuring sufficient labor supply and safeguarding social security systems.
The core issue, according to Hüther, is a deficit in Germany’s overall economic work volume. This isn’t necessarily attributable to a lack of diligence but is directly linked to the country’s aging population. He highlighted a demographic imbalance, noting that 5.2 million people are projected to reach the age of 66 between 2026 and 2029, while only 3.1 million people will enter the 20-year-old age group. This reflects the “baby bust” period of 1965-1975 and Germany is now facing a decade of significant demographic transition. Further complicating the situation is a decline in annual working hours per employed person, dropping from 1,554 in 1991 to 1,332 in 2024, a significant decrease from 1,966 in West Germany in 1970.
Beyond raising the retirement age, Hüther advocates for an increase in the annual working hours. He suggests this could be achieved through adjustments to weekly working hours and the number of working days, particularly given existing rates of part-time employment. He also proposes a targeted increase in immigration to bolster the pension system. This includes facilitating skilled worker migration and integrating individuals currently outside the workforce, potentially by addressing disincentives within the social security system and expanding education and integration programs.
Hüther also stressed a need for greater flexibility within Germany’s labor framework, calling for deregulation of temporary and fixed-term employment and a loosening of regulations regarding working hours and locations. He cautioned against ideologically dismissing potential solutions and urged a pragmatic evaluation of policies that could mutually reinforce each other and expand labor productivity. He concluded by questioning the willingness to engage in open and unbiased discussions about these necessary adjustments.