Unemployment Forecast: Wages in Our Nation May Lose Value
Germany's citizen's income, intended to provide a safety net for its citizens, has been under scrutiny due to its impact on the workforce, particularly at low wage levels. According to Andreas Peichl, head of the ifo Center for Macroeconomics and Surveys, the current system has been criticized for reducing incentives to work [1].
In 2024, the citizen's income increased by more than 12%, outpacing wage growth and inflation. This rise reportedly led between 88,000 and 100,000 individuals to abandon low-paid mini-jobs, exacerbating labor shortages in both skilled and unskilled sectors [1][5]. Critics argue that this encourages undeclared work, contributing to a booming shadow economy where some combine welfare payments with illegal employment and wage underreporting [1][5].
In response, fundamental reforms are being proposed. Chancellor Merz announced a reform aiming to convert citizen’s allowance into a form of basic security while tackling mafia-like structures and social abuse linked to welfare fraud [2]. This includes measures to curb exploitative networks that manipulate the system by employing people illegally and filing welfare claims simultaneously [1][2]. The government is also focusing on job integration efforts and administrative improvements related to social benefits [1].
Additionally, reforms like the “active pension” programme are planned to provide incentives for people to continue working after retirement, indirectly encouraging labor participation among older workers [4].
The debate about whether work in Germany is still worth it has been ongoing since last year, with a survey conducted among job center employees indicating that work is no longer considered worth it [1]. The ifo study in 2024 concluded that work generally leads to more disposable income compared to doing nothing [1].
Reform proposals aim to make citizen’s income a secure but abuse-resistant basic security, targeting welfare fraud and criminal exploitation. The reform of the citizen's income is scheduled for the fall of 2025, and the federal government aims to reduce social benefits costs and strengthen work motivation [1].
However, some experts argue that the proposed reforms may not be sufficient. Peichl, an expert who has crunched the numbers regarding the citizen's income, has identified structural problems in the German social system [1]. He calls for a comprehensive state approach instead of just focusing on cuts in the federal budget [1].
Peichl has analysed over 60 potential reform options for the citizen's income and explains that a job with a good income does not always pay off [1]. He criticizes that various state benefits are not always compatible with each other, contributing to the problem [1].
In summary, the raised citizen’s income has reduced the incentive for low-paid work, increasing undeclared labor. Reform proposals aim to make citizen’s income a secure but abuse-resistant basic security, targeting welfare fraud and criminal exploitation. Additional social reforms and incentives, including pension reforms, seek to balance social support with encouraging sustained employment [1][2][4][5]. Employment in the low-wage sector is seen as a particular challenge, according to experts.
- The increased citizen's income in 2024, outpacing wage growth and inflation, has led to a decrease in the number of individuals holding low-paid mini-jobs, potentially causing financial strains for businesses that heavily rely on these workers.
- Experts, such as Andreas Peichl, have pointed out structural problems in the German social system, suggesting that the proposed reforms to the citizen's income may not be comprehensive enough, and advocating for a more broad-based state approach to address these issues and foster a more productive business environment.
