Family businesses are sounding the alarm: rising social contributions threaten jobs

Family businesses are sounding the alarm: rising social contributions threaten jobs

Things are boiling in the heart of Germany: rising social contributions are causing concern among company leaders and employees alike. A new era of financial challenges could be dawning, forcing companies to rethink their strategies and potentially downsize. The alarming forecasts show that social security contributions could rise dramatically by 2035, and this has prompted many to react.

The report in the Frankfurter Allgemeine Zeitung reveals that social security contributions are expected to rise to over 42 percent of gross wages from 2025. The concern is that this rate could even reach 44 percent in the coming years. A short study by the IGES Institute, which was carried out on behalf of DAK-Gesundheit, also warns that, in the worst case scenario, contributions could even be over 51 percent by 2035. This development goes hand in hand with demographic change and planned reforms.

Incendiary letter to the federal government

In order to put pressure on the government, the “Family Entrepreneurs”, a lobbying organization of numerous companies, turned to the leadership of the traffic light coalition. In an incendiary letter addressed to the political heavyweights Olaf Scholz, Robert Habeck and Christian Lindner, President Marie-Christine Ostermann expresses the urgent need for an emergency concept. She emphasizes that a return to a burden level of 40 percent for additional wage costs is urgently needed.

The letter even points out that the current load limit for companies is considered to be “significantly exceeded”. Ostermann describes the problems that companies are having due to the growing costs. In 2022 alone, companies paid over 620 billion euros in social security contributions. According to the calculation, an increase in the contribution rate by one percentage point would increase payments by a further 18 billion euros and increase the financial burden enormously.

Risks to the economy

The situation is serious. Ostermann warns that continued economic weakness not only endangers the money needed for social projects, climate protection measures or infrastructure repairs, but also accelerates Germany's deindustrialization. The German Economic Institute discovered this in the spring and speaks of alarming net outflows in industry. Net outflows of 94 billion euros were recorded for 2023, a worrying trend that has continued in previous years with 100 billion in 2021 and 125 billion in 2022.

In addition to the economic situation, there are also concerns about the shortage of skilled workers. The fire letter emphasizes that the traffic light government is only making the situation worse with rising labor costs. Particularly well-trained employees could leave, further exacerbating the personnel problems in many companies. Ostermann warned of a downward spiral: “Those who stay here will try to compensate for their shrinking net wages through illegal work.”

The consequences are significant. A potential “financial collapse” of the social security systems is looming, which could particularly affect the baby boomer generation when they retire. The shortage of skilled workers threatens to become a serious risk for the future of medium-sized companies, many of which have already disappointed the government.

A look at the future

The ongoing discussions about increasing social security contributions paint a picture of worrying uncertainty in the German economy. Companies are under enormous pressure to adapt to a changing landscape. It remains to be seen whether the government will be able to address businesses' concerns and find a solution that ensures both social cohesion and economic stability. A rethink is more than necessary if Germany wants to maintain its competitiveness in a global context and secure the future of the domestic economy.

In Germany, the issue of social security systems is of considerable importance. The social security systems - including pension, health, nursing care and accident insurance - in the Federal Republic are designed in such a way that they protect the population from social risks. These systems were financed primarily through contributions from employees and employers. However, the continued rise in social security contributions raises questions about the sustainability of these models, especially given the demographic changes affecting Germany.

A central problem is demographic change: Germany's population is aging and the number of people of working age is shrinking. According to forecasts by the Federal Statistical Office, it is expected that the proportion of people over 67 years of age could increase to around 24% by 2035. This development leads to greater pressure on social systems as fewer employed people pay into pension insurance while the number of pension recipients increases. It is becoming increasingly challenging for companies, especially medium-sized companies, to attract and retain young and highly qualified specialists.

Consequences for the corporate landscape

The concerns of family business owners are also reflected in larger economic indicators. In the survey by the Institute for SME Research (IfM), 52% of the companies surveyed stated that they would have serious questions about their existence in the next few years due to increasing social security contributions. To counteract the challenges, many companies have already taken measures such as reviewing cost reduction strategies or optimizing work processes.

The concrete impact on the corporate landscape is also reflected in investment decisions. A study by the ZEW - Leibniz Center for European Economic Research - showed that over 40% of companies in Germany have reduced their investments due to uncertain conditions regarding social security contributions. This uncertainty not only affects new projects, but also existing companies, which decide to invest less in innovations or personnel out of fear of further burdens.

Changes in contribution structures

A possible political response to this development could be to reform the contribution systems. In recent years there have been several discussions about the structure of social security contributions and their distribution between employees and employers. Some experts suggest introducing increased support for private pension provision as a supplement to statutory pensions in order to ease the increasing pressure on social security funds. There are already various initiatives designed to encourage citizens to save more for their retirement.

It is also being examined to what extent a more flexible contribution assessment system could help to accommodate employers. This could provide important relief, especially for small and medium-sized companies, in order not only to secure existing employment but also to create new jobs.