Not everyone finds it worthwhile to work full-time. How experts want to change this

Is work still worthwhile?

Questions and answers - Not everyone finds it worthwhile to work full-time. How experts want to change this

Yes, those who work in Germany earn more than those who do not. But it is not always worth working more. This is because people on low incomes are entitled to state benefits such as housing benefit or a child supplement.

If these people increase the number of hours they work and earn more money as a result, they risk no longer receiving these benefits because their salary is now too high. The financial incentive to work more is lost.

This was the result of a study carried out by the economic research institutes Ifo and the Leibniz Centerfor European Economic Research for the Federal Ministry of Labor and Social Affairs. The study has not yet been published, but is available to stern and Capital.

How can this be changed?

The researchers want it to pay to work more. They recommend that people should be entitled to state benefits for longer, even if their salary increases. The income threshold for certain benefits should be moved upwards.

This would allow recipients of citizen's benefit to work more without their benefit being severely reduced. As a result of the reform, people could earn up to 2,000 euros and only 70 percent of this would count towards the citizen's allowance. A single person earning 1,500 euros would thus have 478 euros more than if they were not working. Currently it is only 398 euros.

The additional income limits for the child supplement (a family benefit for low earners) should also be raised, the researchers recommend. A single parent earning 2,000 euros gross per month would have 328 euros more in future on a salary of 3,000 euros - at present, her net earnings would only increase by 60 euros.

Isn't that pretty expensive?

Yes, the reform would mean that more people would receive money from the state. That costs money. However, the researchers assume that the state would have higher revenues in return: the improved incentives could lead to a significant increase in the number of hours worked, a sum equivalent to up to 165,000 full-time jobs. The additional taxes and social security contributions would enable the state to offset the additional expenditure.

Why should people work more in the first place?

There is a huge shortage of employees in many professions. At the same time, the proportion of people working part-time is constantly increasing. According to the Institute for Employment Research, 39.2% of all employees were working part-time in the third quarter of 2023 - more than ever before. If the state wants to encourage people to work more, it must therefore consider whether it is worthwhile for them.

What does this have to do with the basic child benefit and the citizen's income?

The Citizen's Income and the Basic Child Guarantee are the two major social policy measures that the coalition government had planned at the beginning of its term in office.

With the introduction of the citizen's income, the government had already adjusted the additional income limits so that people receive citizen's income for longer - even if they work. However, it also agreed to take another closer look at the incentives to work. The report is now the result of this investigation.

The basic child benefit has not yet been introduced and the governing parties are arguing about it. The FDP said that they wanted to wait for the report before deciding what form it should take in order to avoid creating false incentives.

The fundamental difficulty is that the reform should avoid two things: that the state has to pay more. And that people are deprived of benefits to which they were previously entitled. Instead of increasing benefits for low-income earners, benefits for recipients of citizen's income could also be reduced so that the so-called wage gap is greater. However, the majority of the coalition government rejects this.

And now?

The Ministry of Labor will now examine the reform proposal. The state secretary responsible, Annette Kramme, has already expressed skepticism about the consequences of such a reform. Among other things, she is asking how reliable the cost estimate is and how costly the changeover would be for the administration.

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1. The study conducted by Ifo and the Leibniz Center for European Economic Research suggested that to incentivize work, the Federal Government should consider extending the entitlement to state benefits for individuals with increased income, specifically in Germany.
2. The proposal from the economic research institutes suggests raising the income threshold for certain benefits, such as the citizen's benefit, which would allow low earners to work more without drastically reducing their benefits.
3. To implement this proposed change, the German Federal Government, through the Federal Ministry of Labor and Social Affairs, would need to consider the financial implications and potential administrative adjustments, as highlighted by State Secretary Annette Kramme.

Source: www.stern.de