1. Home
  2. Studies
  3. Rising social security contributions weigh on competitiveness
Michael Hüther / Thomas Obst / Jochen Pimpertz IW-Policy Paper No. 3 23. January 2025 Rising social security contributions weigh on competitiveness

Germany is suffering from a loss of international competitiveness. Revitalising economic growth therefore not only requires a sustainable change of economic policy. Even in the short term, measures must be taken to revitalise public and private investment in Germany.

Download PDF
Rising social security contributions weigh on competitiveness
Michael Hüther / Thomas Obst / Jochen Pimpertz IW-Policy Paper No. 3 23. January 2025

Rising social security contributions weigh on competitiveness

German Economic Institute (IW) German Economic Institute (IW)

Germany is suffering from a loss of international competitiveness. Revitalising economic growth therefore not only requires a sustainable change of economic policy. Even in the short term, measures must be taken to revitalise public and private investment in Germany.

However, rising social security contributions are becoming an additional burden that can thwart incentives to invest. In the medium to long term, rising contributions threaten to reduce economic growth by half per cent compared to a constant contribution burden. This is because higher labour costs primarily affect the competitiveness of the German economy, while higher employee contributions lead to a decline in private consumption and domestic demand. To slow down the impending rise in contribution rates, in the federal election campaign some parties are proposing to raise the threshold for income subject to contributions in mandatory social security schemes. It is true that the expected additional income could be used to avoid increases in contribution rates in the short term. However, a supposedly fairer distribution of the burden cannot hide the fact that the overall contribution burden for employees and employers is increasing. Moreover, the ageing of the population will lead to further increases in contribution rates in the medium and long term, even with an increased income threshold. Instead, it is necessary to limit the increase in expenditure both in statutory old age insurance and in health and long-term care insurance to stabilise contribution rates under the rules of the current contribution law.

Download PDF
Rising social security contributions weigh on competitiveness
Michael Hüther / Thomas Obst / Jochen Pimpertz IW-Policy Paper No. 3 23. January 2025

Rising social security contributions weigh on competitiveness

German Economic Institute (IW) German Economic Institute (IW)

More on the topic

Read the article
Guidelines for the 21st legislative period and beyond
Jochen Pimpertz IW-Policy Paper No. 13 3. December 2024

Agenda 2030 for pension policy: Guidelines for the 21st legislative period and beyond

In Germany, first cohorts of the baby boomer generation are about to enter regular or early retirement. This threatens a decline in labour supply on the one hand and an increase in expenditure for pensions, healthcare and long-term care on the other.

IW

Read the article
Andrea Hammermann / Jochen Pimpertz / Oliver Stettes Expertise 11. November 2024

Employment shortly before and after retirement

As a result of demographic trends, around a quarter of all employees in the mechanical engineering sector are expected to retire in the next ten years. This corresponds to more than 296,000 people.

IW

More about this topic

Content element with id 8880 Content element with id 9713