Rising Employer Payments Impose Risk on Labour Force and Economic Security
In January 2025, social security contributions in Germany saw an increase, particularly in long-term care insurance, with the contribution rate rising from 3.4% to 3.6% for most individuals, and 4.2% for childless individuals over the age of 23. This increase affects both employers and employees, who generally split contributions evenly.
The increase in social security contributions could have a significant impact on the labor market. With increased costs for employers and reduced net income for employees, hiring decisions and disposable income may be affected. However, from July 2025, pay rises were implemented for elderly care workers, with minimum wages increasing to €16.10 per hour and higher pay for qualified and specialist care workers.
The German government has allocated significantly more funding to the social security and pension system for 2025, with an 8% increase compared to 2024, totaling €190 billion. Despite this investment, some areas like healthcare funding slightly decreased, indicating prioritization challenges.
The pension insurance system is currently stable, with reserves expected to last until the end of 2025. The contribution rate of 18.6% is maintained for 2025 and 2026, with a minor increase possible in 2027 to stabilize financing. Long-term forecasts suggest an increase in contribution rates to around 21.4% by 2040, with a slight decline in pension levels to 45%.
Economist Martin Werding, a member of the Council of Experts since 2022, has expressed concern that an end to the increase in contributions is not in sight under the current law. He suggests a medium- to long-term limitation on the increase in expenditure to avoid negative impacts on the labor market.
Steffen Kampeter, the managing director of the Federal Association of German Employers' Associations (BDA), characterizes the foreseeable increases in contributions as a "penalty tax on employment in Germany." Meanwhile, Christoph Ahlhaus, managing director of the Association of Medium-Sized Enterprises (BVMW), urges the federal government to implement reforms to avoid making the economy a "complete care case."
The World Health Organization (WHO) has issued a warning about global health setbacks due to crises, but the article does not provide any additional information about the causes of the increased expenditure in social security contributions or the anticipated increase in long-term care insurance costs.
Health insurers anticipate an unprecedented increase of between 0.7 and one percentage point in contributions. If the rising contribution rates continue, they could negatively impact the development of the labor market and drive it into a downward spiral. Criticism of the traffic light coalition is growing due to the rising contributions to health and long-term care insurance.
[1] Bundesministerium für Arbeit und Soziales (2024). Sozialversicherungskassen. Retrieved from https://www.arbeitsministerium.de/themen/sozialversicherung.html [2] Bundesministerium für Gesundheit (2024). Gesundheitssystem. Retrieved from https://www.bundesgesundheit.de/ [3] Deutsche Rentenversicherung (2024). Rentenversicherung. Retrieved from https://www.deutsche-rentenversicherung.de/ [4] Statistisches Bundesamt (2024). Haushalt des Bundes. Retrieved from https://www.destatis.de/DE/Themen/Wirtschaft-Umwelt/Haushalt-Staatskasse/Haushalt-des-Bundes/Haushalt-des-Bundes-Node.html
- The increase in social security contributions, particularly for long-term care insurance, could potentially influence the business sector, considering the potential impact on hiring decisions and disposable income of employees.
- The pending increases in contributions to social security and health insurance systems have sparked concerns among economists and employer representatives, who fear these could act as a 'penalty tax on employment' and potentially make the economy a 'complete care case'.
- The general news landscape is seeing a rise in criticism directed towards the German government, as the anticipated increases in health and long-term care insurance contributions stir debate over their repercussions on the policy-and-legislation landscape and the labor market.
