The Blubber

Germany has the shortest average working hours of any advanced economy, with the annual figure falling 30% in the past 50 years and now a quarter below US levels.

Germany is considering tax breaks and welfare reforms to encourage increased work hours, aligning with the UK and the Netherlands in addressing economic stagnation by reversing a significant decline in average working hours.

After months of debate, German Chancellor Olaf Scholz’s coalition is preparing a “growth plan” to be announced as early as next month. The plan aims to make extended working hours more appealing, with discussions focusing on tax cuts for overtime and welfare benefit revisions, according to sources familiar with the plans.

The decrease in working hours across Europe since the pandemic has worsened the region’s economic performance and competitiveness, prompting policymakers to act as aging populations reduce workforces.

According to the latest OECD data for 2022, Germany has the shortest average working hours among advanced economies. This is partly due to a high proportion of German women working part-time and a growing preference for more leisure time.

Even low-paid workers in Germany find little incentive to work more hours because much of their additional income is lost to taxes and reduced benefits.

“Everyone is only talking about the cyclical part of the problem in our economy, but even if we get back to 0.6 or 0.8 percent annual growth we still won’t have fixed the structural problems. That is why we are tackling them,” said Jörg Kukies, state secretary in the German chancellery, to the Financial Times.

The OECD reports that average annual hours worked by Germans have decreased by 30 percent over the past 50 years, now a quarter below US levels. This trend reflects Europeans' growing preferences for extended leave and more leisure time.

“There are lots of disincentives for women to work longer hours in the German tax system,” said Enzo Weber, head of research at the Institute for Employment Research in Nuremberg. He cited part-time roles that allow people to earn up to €538 tax-free per month and “tax-splitting” rules for married couples.

Christian Lindner, the German finance minister, has been advocating for tax relief on overtime beyond 41 hours a week and modifications to the Bürgergeld unemployment benefits system. However, unions oppose these ideas, which are still under debate within the ruling three-party coalition.

“In Italy, France, and elsewhere there is significantly more work done than here,” Lindner said at last month’s IMF/World Bank meetings in Washington. “When people work or work more, they end up paying higher taxes and social security contributions and receiving fewer social transfers.”

The energy crisis sparked by Russia’s invasion of Ukraine caused the German economy to shrink by 0.2 percent last year. While Europe’s largest economy rebounded with 0.2 percent growth in the first quarter, it is expected to remain one of the world’s weakest major economies this year, with annual GDP growth below 1 percent.