A comprehensive reform of Germany’s social welfare system could potentially increase the number of working hours performed nationwide by the equivalent of 149,000 full-time positions, according to a new study. Public finances could benefit from annual savings of €4.5 billion through the implementation of such a reform, the study by the Ifo Institute, commissioned by the Munich and Upper Bavaria Chamber of Industry and Commerce (IHK), reveals.
The proposed reform centers on consolidating existing benefits including unemployment assistance (Bürgergeld), housing allowances (Wohngeld) and child supplements into a single, unified payment. Researchers suggest this change would provide a significant incentive for single individuals to seek and accept socially insured employment.
“The study demonstrates that a balanced adjustment to the current unemployment assistance system is both feasible and urgently needed” stated Manfred Gößl, CEO of the Munich and Upper Bavaria IHK. “Tailored incentives, designed with varying household structures in mind, have the potential to generate substantial savings for taxpayers, while simultaneously boosting the labor supply”. The proposed changes are estimated to generate approximately 230 million additional annual working hours.
A key element of the reform involves establishing clear and targeted rules regarding the reduction of social welfare benefits as recipients earn income. Single individuals without children are able to retain 35 cents of every Euro earned above a gross monthly income of €380. Couples without children retain 20 cents. Income below €380 is fully offset against benefits, effectively leaving recipients with no net gain. The objective is to encourage recipients to pursue stable, socially insured employment rather than limited, part-time work. Families, however, are afforded greater allowance, retaining 35% of any additional earnings from the first Euro onward. Single parents also benefit from a more favorable financial incentive above the €380 gross income threshold.
“The proposed social welfare reform streamlines the system by consolidating numerous parallel benefits into a single payment” explained Ifo Institute researcher Lilly Fischer. “Furthermore, differentiated income retention rules allow for a targeted increase in the labor supply across various demographic groups”.