Pensions and the reduction of non-wage labour costs. Modelling a decade of reforms in Germany

Abstract

The reduction of non-wage labour costs has become a top priority of virtually all social insurance reforms in the European Union. This paper starts out by discussing the levers politicians can theoretically manipulate to lower non-wage labour costs without undermining the equilibrium between revenue and expenditure in social security, focusing on pension schemes. After a discussion of general options open to policymakers, the paper discusses the reforms in Germany during the past decade, in particular the most recent pension reform that seeks to introduce a privately administered funded element into the statutory scheme. It concludes by critically assessing the extent to which this partial return to funding will allow the country to overcome the pending demographic crisis of social security, and by pointing to reform options that have not been considered.