Longer working hours

To prevent this from leading to a decline in the labor supply that would limit growth, compensatory mechanisms must be put in place: expanding potential supply through the immigration of skilled workers, increasing labor force participation, and extending working hours. It must be expected that the potential from immigration will remain limited and that labor force participation can only be increased in the longer term at best. The potential that could be raised by activating the unemployed is also insufficient. This leaves the extension of working hours as a decisive lever for coping with the demographic burden.

The measures planned and, in some cases, already decided upon by the federal government are not expected to effectively extend working life. To achieve this, the option for people who have been insured for a long time to take early retirement without reductions would have to be abolished. In general, the conditions for early retirement with reductions for people who have been insured for a long time must be modified in such a way that the decision to retire is effectively postponed towards the statutory retirement age. Against this background, the reintroduction of the additional income limit should also be considered. An automatic adjustment of the statutory retirement age would keep the ratio of contributors to beneficiaries in a balanced equilibrium in the long term.

Weekly or annual working hours can only be controlled indirectly by politics, as they are negotiated autonomously by employees and companies. Legislators can only create a framework that makes extending individual working hours attractive. The measures set out in the coalition agreement are a step in the right direction, but they remain piecemeal and suffer from problems in the details. The key lever is to reduce the tax wedge. Employees will be willing to work longer if it pays off in terms of higher disposable income. Findings from the IW Employee Survey 2025 confirm that most employees are willing to increase their working hours if it would be worthwhile.

In addition, existing rules and politically debated and announced legislative measures need to be reviewed. In a „demographic check,” every regulation that creates incentives to reduce the labor supply must be evaluated to determine whether the intended purpose can justify the problem-exacerbating effect on the labor supply.

Findings from the IW employee surveys in 2024 and 2025 indicate that companies can also contribute to motivating employees to work more and longer in terms of their working life by implementing age-appropriate or life-stage-oriented personnel policies. From the employees' point of view, flexible working hours and locations are an important factor in potentially extending their own weekly working hours.