German Government Extends Kurzarbeitergeld Amid Economic Crisis and Job Loss Warnings

The German government has extended the Kurzarbeitergeld, or short-time work allowance, to a duration of up to 24 months until December 31, 2026, aiming to provide companies with more stability during the ongoing economic downturn. This move comes as Chancellor Friedrich Merz issued stark warnings about widespread job losses across many German industries, particularly in manufacturing and the Mittelstand (small and medium-sized enterprises).

Bundeskanzler Merz expressed serious concerns about the state of the German economy in a letter to Bundestag members. He described the situation as "very critical in several areas," highlighting structural challenges such as high labor costs, energy prices, and bureaucratic burdens. While the top 100 German companies reported a slight overall revenue increase of 0.6% to approximately 1.55 trillion euros in the first nine months of 2025, their profits before tax and interest fell sharply by 15% to 102 billion euros. The automotive sector was particularly affected, with profits dropping 46% despite only a 2% revenue decline.

Job losses have been significant: about 17,500 positions were cut from January to September 2025 at these companies, contributing to an overall decline of roughly 100,000 jobs since 2023. Looking ahead to 2026, 22 of 46 industry associations forecast further job cuts, especially in labor-intensive sectors like automotive, metal, and chemical industries.

The Kurzarbeitergeld extension, approved by the Bundeskabinett, is designed to safeguard employees from unemployment by maintaining their income at 60% of lost net earnings for childless workers and 67% for those with children while allowing companies to reduce working hours. Labor Minister Bärbel Bas emphasized that this helps secure jobs during uncertain times and enables businesses to adapt flexibly by using freed capacity for training.

The Central Association of German Handicrafts (ZDH) criticized the extension, warning it might conceal ongoing job losses, inflate unemployment costs, and prolong economic difficulties. They urge instead to lower social insurance contributions to improve overall business conditions.

Economic experts, including IW director Michael Hüther, caution against quick expectations for recovery, pointing to rising protectionism and high operational costs as ongoing challenges. In December 2025, Germany’s job market decreased by 1.7%, reflecting the broader crisis.

In conclusion, while the government’s extension of Kurzarbeitergeld offers temporary relief and planning security amid an unresolved economic crisis, German industries continue to face deep structural problems and significant job reductions in the coming year.