Europe’s declining appetite for work is evident, with Germany as the starkest example. It’s the result of a tax and social benefit system where work no longer feels worthwhile. Policymakers must act to restore productivity incentives.
It’s better to unwind and chat than put in extra hours: Berliners enjoy the park at the city’s former Tempelhof Airport.
Maja Hitij / Getty
Why have the Germans become so fragile? During the pandemic, the average German worker took 20 sick days. But instead of declining after the coronavirus crisis, absenteeism surged. By 2022, the average German employee was out sick for an astonishing 25 days, according to the World Health Organization.
Germans have long ranked among the most frequently absent workers in Europe, but last year, they claimed the distinction of leading the pack. For comparison, Swiss employees missed just nine days due to illness, while British workers averaged a mere six.
Yet sick leave is only part of the story. Germans also enjoy an average of 31 vacation days annually, compared to 26 in Switzerland. Add six weeks of holidays to three to four weeks of sick leave, and it’s little wonder Germany’s economy is once again being likened to the «sick man of Europe,» a label it last earned before Gerhard Schröder’s Hartz IV welfare reforms shook up the labor market.
Germany, however, is far from an outlier. It has simply become the most extreme example of a broader European trend: rising absenteeism. Across the continent, taking sick leave seems to have grown more common. In Germany, this shift was likely abetted by the country’s recent introduction of digital sick notes, a convenience that may be fueling this troubling practice. The only question is: why?
Interest in working has fallen universally
Across Europe, a cultural shift is underway as societies lean further into leisure and aspirations outside of work. Since the turn of the millennium, working hours have declined across all advanced economies. Austria has seen the steepest drop, with annual working hours falling by 151 – equivalent to about 19 workdays. In Germany, the average annual working time has shrunk by 76 hours over the past 23 years.
Even Switzerland is not immune to this trend. Swiss employees now work, on average, 138 hours less per year than they did in 2000. That said, the gaps between countries remain stark. The average American worker clocks 1,810 hours annually, more than a third higher than the 1,301 hours worked by Germans – Europe’s most work-averse employees. Meanwhile, Swiss workers still put in over 200 more hours per year than their German counterparts.
The rise of part-time work has been a significant factor behind Switzerland’s decline in hours worked. In order to compare countries to each other, the OECD defines part-time employees as those working fewer than 30 hours per week in their main job. This category now encompasses 19% of the workforce in Germany, 20% in Austria and 22% in Switzerland.
On one level, this is a symptom of prosperity. A Swiss worker can more easily afford a 60% workload than, say, a Polish counterpart. Moreover, standard working hours in Switzerland remain relatively high.
But the part-time trend also points to societal changes, particularly in how families balance work and caregiving. Employment rates for adults aged 24 to 65 have risen markedly, climbing from 75% to 85% in Germany and from 83% to 87% in Switzerland since the early 2000s. This shift has been driven primarily by increased female participation in the labor market. Sweden offers a contrasting model. There, full-time employment for both parents has long been the norm, leaving part-time work less prevalent. However, Swedes have historically worked fewer hours overall.
A shrinking payoff
The shift toward longer vacations and shorter working hours in Europe is not just a sign of growing prosperity or changes in the division of labor in families. At its core, it reflects a fundamental problem: working simply isn’t as rewarding as it should be.
Tax burdens offer a clear illustration. In Italy, for instance, a family with two children, where one parent earns the average income and the other earns two-thirds of that, loses 56% of every additional euro to taxes – making Italy (along with Belgium) the most punitive in Europe for dual-income households. Austria follows with a marginal tax rate of 48%. When you factor in the added costs of working, particularly for families with children, the financial benefit of additional employment often turns into a net loss.
Sweden, once notorious for its high marginal tax rates, recognized this issue early. Since 2000, it has slashed its rate for such families from 53% to 32%, encouraging many Swedes to return to full-time work. Germany, while reducing its marginal rate for average-income families, still imposes a hefty 41% – well above Switzerland’s comparatively light 26%.
For low earners, the situation in Germany is even more discouraging. Early and steep tax progression makes additional work particularly unprofitable. According to the OECD, a single worker without children earning two-thirds of the average income in Germany forfeits 45% of their earnings to taxes. In comparison, this figure is 33% in France, 29% in Sweden and just 22% in Switzerland.
It’s little wonder, then, that those on lower incomes – who lose so much of what they earn – feel little motivation to work more.
Germany’s distorted incentives are compounded by another factor: generous state benefits for low-income earners. As wages increase, these subsidies are scaled back or withdrawn altogether, creating a financial disincentive to earn more. This dynamic has paved the way for a society that increasingly values leisure and hobbies over hard work.
High time for reforms
The steady decline in working hours is alarming for at least two key reasons. First, fewer hours worked drive up the cost of labor, undermining economic competitiveness. Germany’s sluggish economic growth is partly a result of this trend. Encouraging Germans to work longer and to value work again could help restore lost competitiveness. Without such changes, the country risks a visible erosion of its prosperity.
Second, over the next decade, significantly more people in Germany will leave the workforce than enter it. According to the European Commission,the working-age population will shrink by over 250,000 annually for the next 10 years, while the share of retirees in the population will climb from 22% to 27%. Maintaining current levels of prosperity under these conditions will thus be a challenge.
If Europe, and especially Germany, is to regain its economic dynamism, the working-age population will need to work more. Achieving this requires a bold reform agenda to address existing disincentives. Here are six key measures that could help:
Fix tax progression: Early tax progression reduces the incentive to work.
From an economic point of view, flat tax rates, like those in Estonia and Latvia, minimize distortions. In Germany, delaying the onset of progression would be a step in the right direction. Similarly, in Switzerland, the highly progressive federal income tax discourages middle-class families from working more.Index taxes to inflation: Failing to adjust tax brackets for inflation – often referred to as «cold progression» – pushes taxpayers into higher brackets without increasing their purchasing power.Increase the incentive to work for welfare recipients and refugees: Work needs to be rewarding. Unemployment and social welfare benefits should be designed so they don’t drop drastically when recipients start earning again. This principle should also apply to other benefits and subsidies, such as government contributions to housing costs, reduced premiums for health and accident insurance and childcare subsidies. These benefits should gradually decrease as income increases, avoiding sudden or steep reductions.Negative income tax instead of an unconditional basic income: Germany’s Bürgergeld – a basic income for over 5.5 million people, nearly half of whom are refugees – functions as an unconditional safety net, akin to a basic income. The state also provides a number of other social benefits. Those who refuses to work should face sanctions. This is particularly important given that the working environment is the best tool for integration. A negative income tax could offer a more efficient solution. Under this system, the state would top up income for low earners, linking payments to active participation in the labor market while ensuring a minimum standard of living.Liberalize labor laws: We’re in the midst of a meritocracy crisis. Strong protections against dismissal and excessive regulation mean low-performing workers face few consequences, while high achievers are often under-rewarded.Reassess priorities: Under Chancellor Olaf Scholz, government spending has surged, mirroring a similar, albeit more modest, trend in Switzerland. A leaner state with lower taxes would do more to encourage work than generous subsidies. Reforms should include reducing government expenditures or, at the very least, capping its growth. Subjecting spending priorities to a critical review on a regular basis is therefore needed, as is enforcing fiscal discipline through mechanisms like debt brakes.
Public debate, as initiated in Germany by former Finance Minister Christian Lindner with his economic turnaround paper and proposals by CDU leader Friedrich Merz, is heading in the right direction. The end of Germany’s current «traffic light» coalition government may provide an opportunity to shift the narrative. However, the initial challenge lies in convincing voters this shift is urgent.
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Publish date : 2024-11-19 01:10:00
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