Are social security contributions also a factor in the competitiveness of German companies?
Rising social security contributions are no longer just a problem for employees – they are hitting companies just as hard. By 2025, total social security contributions in Germany will already exceed 40% of gross wages – and the trend is set to continue. Forecasts indicate figures of over 46% by 2035. But what does this mean in concrete terms for the competitiveness of German companies?
Social security contributions in Germany
Social security contributions are generally paid equally by employers and employees. These are contributions for pension, unemployment, health and nursing care insurance. For those without children, there is an additional surcharge for employees for nursing care insurance. For both sides, this amounts to approximately 21% of gross salary. In total, this is over 40%, partly because the additional contribution for health insurance will average 2.5% in 2025! This is deducted from the employee's gross salary, whereas the employer must pay this 20% as a surcharge on the gross salary. Forecasts assume that social security contributions will already amount to at least 42.7% in 2026, at least 44.5% in 2029 and at least 46.3% in 2035.
Social security contributions in European comparison
Looking at labour costs in Europe, Germany ranked sixth in 2022, with a good €40 per hour, €44 in industry, slightly behind France, Sweden and Belgium, as well as Denmark and Luxembourg. Looking at other studies, e.g. from the German Economic Institute on labour cost levels in the manufacturing sector, we ranked third in Europe in 2021 after Norway, Denmark and Belgium, on a par with the USA worldwide. Social security contributions are included in this calculation. It should be noted, however, that wages and salaries in Germany have risen significantly again since 2022 (by 6% in 2023 and 5.4% in 2024, according to the Federal Statistical Office). And at present, collective bargaining negotiations are once again underway in many sectors, including those threatened by job cuts, with demands on a considerable scale.
In addition to the high energy costs that Germany has as an energy-importing country, we are also at the top of the league in terms of wage costs. In order to avoid being priced out of international competition due to high costs, this can only be offset by productivity gains. However, other countries have caught up with or even overtaken Germany in recent years.
Impact of social security contributions on businesses
Against this backdrop, it is clear that rising social security contributions do not only directly affect employees. Businesses are affected to at least the same extent, and the more salaries rise, the greater the impact. This further reduces the competitiveness of German businesses. With all price increases, some of which are also driven by wage increases, the following aspects should be taken into account.
High wage and salary agreements also result in additional social security contributions for companies. Especially in sectors that are suffering from energy prices or customs policy, this will lead to even more problems in offering competitive prices. Companies will respond to lower capacity requirements with layoffs or productivity efforts, which will also lead to layoffs. This will ultimately also have negative effects on the labour market.
This is less about corporations that continue to report billions in profits, which they may need to transform their business models. Those particularly affected are small and medium-sized enterprises and many suppliers, which have to make do with very different margins. If further erosion is to be avoided, moderation and countermeasures are called for.
The result shows that it is not only employees who are affected, but employers too. In fact, employers are affected twice over, as wage and salary increases also lead to an additional increase in social security contributions, which has a full impact on liquidity. This shows the scale of the debate surrounding social security systems and why it is so important to halt this increase.