Darkening Debt Picture Casts a Shadow over Germany's Stellar Growth Performance

Past reforms of the labor market in Germany contributed to the strong resilience of employment during the past recession by raising working hour flexibility and reducing structural unemployment. Future reforms need to tackle severe challenges: the demographic change and the shortage of high-skilled labor. The German labor force is not only decreasing in size, but is also becoming increasingly older. Sustained growth in employment requires higher levels of immigration, and higher productivity growth will require a more skilled labor force. Labor and immigration law reforms will therefore play a key role in determining Germany’s long-term fiscal health.