Germany’s Economic Minister Pushes for Major Labor Market Reforms to Boost Growth

Germany is facing a period of economic stagnation that has prompted Federal Minister of Economics Katherina Reiche to call for comprehensive labor market reforms. In interviews and discussions with political leaders, Reiche emphasized the urgency to increase overall working hours and introduce greater flexibility into job protection laws to stimulate economic growth.

Reiche described Germany’s current economic situation as “very serious,” warning that for the first time since the founding of the Federal Republic, the country cannot guarantee prosperity or upward mobility. She proposed raising the retirement age while reducing early retirement options, criticizing companies that mourn a lack of young talent yet push older, qualified workers aged 61 and above into part-time retirement. This approach, she argues, could better utilize experienced labor to sustain the economy.

A core recommendation from Reiche focuses on shifting more part-time jobs into full-time employment through incentives such as tax benefits and expanded childcare services. Germany’s average working hours annually fall roughly 25 percent short of those in the United States. In 2024, the average weekly working hours in Germany were 34.3 hours, below the European average of 36.8 hours. Additionally, part-time employment has grown substantially, reaching nearly one-third of the workforce.

Reiche also called for loosening dismissal protection laws to allow companies, particularly those in high-wage sectors, to reduce staff more swiftly when necessary. This increased flexibility would help businesses respond efficiently to changing market conditions without negatively impacting vulnerable employees.

Jens Spahn, leader of the Union parliamentary group, supported Reiche’s call for reforms, highlighting the need for 2026 to be a year of growth rather than new debts. He urged stabilization or reduction of social security contributions to keep personnel costs manageable for businesses.

The Bundesbank’s growth forecast for 2026 stands at a modest 0.6 percent, slightly lower than earlier estimates, underscoring the pressing need for measures to spur economic activity. Reiche’s proposals aim to address structural challenges by encouraging longer working hours, greater labor market flexibility, and better utilization of the workforce’s potential, signaling a pivotal shift in Germany’s approach to securing its economic future.