Historic Turning Point in the Labor Market in Germany—How Demographic Change Slows Down Growth

Demographic change is becoming a major challenge for the German labor market. The shift towards an aging and shrinking working population is accelerated by the retirement of the baby boomers. By the end of this decade alone, the potential workforce could shrink by up to 3 million people, associated with a loss of 4.5 billion working hours. This development challenges the financing of social systems on the one hand, and the debt sustainability on the other. The phenomenon is expected to reduce labor supply and restrict the growth potential of the German economy in the long term. Even though various strategic approaches are up for debate, empirical studies show that a significant lever lies in the adjustment of annual working hours.