Ifo Institute researchers suggest that reducing the duration of reduced working hours benefits could help alleviate the current labor shortage. According to the institute’s current study, it is observed that “we are currently experiencing a labor shortage in many industries while simultaneously seeing high levels of unemployment in other sectors”. Therefore, Ifo researcher Volker Meier argues that it would be sensible to shorten reduced working hours benefits for shrinking segments of the economy, allowing the workforce to become available to different sectors in the medium term.
Currently, employees can receive reduced working hours benefits for a maximum of 24 months-a duration that has been steadily increased from twelve months in 2019 and previously existed for only six months. Ifo researcher Leander Andres notes that, in its present form, the reduced working hours benefit “hinders flexibility in the labor market and acts like a temporary wage subsidy for companies. For employees, it makes the process of finding a new job less attractive”.
To facilitate the transfer of workers from old industries into new ones, targeted retraining and professional development are crucial. Meier suggests a possible mechanism: providing higher benefits for reduced hours or for the unemployed if they are simultaneously participating in a retraining program or changing jobs.
In addition to these measures, the authors propose broader policy reforms aimed at increasing the labor supply, particularly among older individuals, women, and immigrants. These suggested reforms include abolishing the current retirement age of 63 and increasing deductions for early retirement. They also recommend eliminating the spousal tax split, or significantly adjusting tax rates for secondary earners. Finally, removing bureaucratic obstacles related to work permits and the recognition of foreign qualifications for immigrants is suggested.