To revive Germany’s ailing economy, new chancellor Friedrich Merz must tackle a baffling paradox: employment is at record highs but individually, Germans have never worked less.
By 2035, 4.8mn older German workers — 9 per cent of the labour force — are due to retire, and Merz’s coalition must persuade younger generations to surrender more of their free time to support Europe’s largest economy.
Over the coming years, Germany will be among the first and most important test cases of how rapidly ageing western economies can cope with a retirement cliff.
Economists warn that the centrepiece of Merz’s growth strategy, a €1tn debt-fuelled spending plan, may also make solving the working hours dilemma even more urgent.
“More money in itself does not build any road or bridge — we do need additional workers for that,” said Clemens Fuest, head of economic think-tank Ifo.
Germany’s labour market dynamics are unique in the developed world, yet it is far from a nation of slackers, insists Bernd Fitzenberger, director of labour market think-tank IAB.
The number of people in jobs and the total hours worked across the German economy rose to yet another all-time high in 2024, in part due to immigration as the number of foreign workers over the past decade almost doubled to 6.3mn. Four out of five people of working age have a job — one of the highest labour participation rates among rich countries.
“In aggregate, Germans are working more than ever before,” said Fitzenberger.
Yet average working hours per employee fell to a record low last year, when excluding the Covid pandemic year of 2020. Germany has the shortest average working hours of any wealthy economy, according to OECD data.
As the baby boomer generation exits the workforce over the next decade, short working weeks threaten to worsen labour shortages, which already dog some sectors such as health, education and parts of the engineering industry.
“The long-term outlook is pretty bleak,” warns Martin Werding, a member of the German government’s Council of Economic Experts, which forecasts that the country’s stunted labour supply over the next decades could wipe out up to 0.6 percentage points of its already lacklustre annual growth potential.
At 69, Merz is Germany’s second-oldest chancellor at the start of his term after Konrad Adenauer who was 73 when he was first elected in 1949. While he could be a role model for working longer and harder, persuading the rest of the country to do the same won’t be easy.
Postwar German labour relations have been shaped by a long trade union campaign for the five-day work week in the 1950s and 1960s, using a famous emotional poster depicting a child who stated: “Samstags gehört Vati mir” (“On Saturday, daddy is mine”).
© DGB
In the 1980s, unions went on one of the longest strikes in history trying to shorten the working week further from 40 to 35 hours for full-time workers. Today, the country’s myriad collective bargaining agreements on average postulate 37.8 hours as the normal work week.
In 1993 then-chancellor Helmut Kohl caused a stir by claiming that Germany started to resemble “a collective amusement park” due to short work weeks and widespread early retirement — since then, the average employee’s working time has fallen by 13.5 per cent.
A move by Angela Merkel’s government in 2007 to lift the legal pension age by two years to 67 remains highly unpopular with German voters and still haunts the Social Democrats, who supported it.
The coalition between Merz’s centre-right Christian Democratic Union and the Social Democrats have, in their treaty which defines the political agenda until the next election, committed to incentives to persuade Germans to increase their working hours, and to delay retirement.
Helmut Kohl speaks with a worker on a trip to a computer factory in 1993 © Ralf Hirschberger/picture-alliance/ZB
Economists welcome that the new government is acknowledging the growing problem of Germany’s dwindling labour supply.
But “the ideas are still too vague, and the devil really is in the details”, said Andreas Peichl, economics professor at Munich University and a senior Ifo economist.
The new incentives are likely to be either “inefficient, very costly or a bureaucratic nightmare”, he said.
One of the biggest pools to increase labour supply sits in Germany’s vast army of part-time workers. According to the country’s statistical office, the share of part-time workers has more than doubled to 30 per cent of the labour force since the early 1990s — mainly driven by women.
Sebastian Dullien, director of economic think-tank IMK, stresses that the boom in part-time work distorts statistics on hours worked per employee. People who were now working part-time “were not part of the labour force at all in the past” and therefore drag down the overall average.
At 40.2 hours per week, full-time employees in Germany today work on average only one hour less per week than in 1991. But when the vast increase in part-time staff that weren’t employed in the past are included, average hours worked per employee is just above 34 hours a week — 7 per cent below the EU’s average and 16 per cent less than in Greece.
Surveys show that many part-time workers in Germany are keen to increase their hours but run into a myriad of problems, with patchy childcare chief among them. In larger cities in particular, full-time child care is in short supply, unreliable and costly.
“After my daughter was born seven years ago, we first worried if we could get a place in a nursery, then in a kindergarten and later in an after-school nursery,” said Ina Schmidt, a 47-year-old working mother in Munich, pointing out that her daughter’s primary school ends at midday.
Schmidt works 25 hours a week in a paediatric psychiatric ward — an area where skilled workers are in short supply. She said that she would love to work up to 10 hours a week more but isn’t able to do so as she is not satisfied with the quality of the homework support her daughter can get after school.
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Stephanie Poggemöller, founder of Munich-based coaching group Work & Family, said the lack of good child care was “one of the most recurring issues” hindering mothers from returning to full-time work, and “women are often left to their own devices”.
There are other levers Merz’s coalition could pull — but none of them would be popular.
Even a simple idea such as axing a public holiday, the number of which varies according to location but which could add up to as many as 13 this year, has not gained much traction. According to an Ifo estimate, such a move could generate an additional €8bn of GDP each year.
A further increase in the legal pension age and higher pension deductions for early retirees would also be “highly effective”, said Werding of the Council of Economic Experts. “But all such ideas are a political minefield.”
Data visualisation by Keith Fray