Germany's Coalition Races to Overhaul Dismissal Protection as Study Highlights Cost Burden
12.06.2026 - 04:32:28 | boerse-global.de
A new study from the Council of Economic Experts member Veronika Grimm fuels the urgency: Germany’s dismissal protection is too rigid, she argues, and the country is paying for it — both in lost dynamism and in cold cash. Grimm, together with economist Désirée I. Christofzik, prepared the analysis for the Joint Committee of German Business and Industry. It singles out demographic aging, weak technological progress, and rising Chinese competition as the root causes of Germany’s growth malaise. The recommendations go beyond labor law: lower taxes and social contributions, a higher retirement age, and scaling back benefits like the Mütterrente (mothers’ pension) and the Rente mit 63 (pension at 63) are also on the table.
The political push to act comes from the top. On June 10, Chancellor Friedrich Merz, CSU leader Markus Söder, SPD Finance Minister Lars Klingbeil, and senior representatives of employer associations and trade unions met for roughly three and a half hours at the Chancellery. No concrete decisions were made. But the group agreed to a tight timeline: a coalition committee is scheduled to meet on July 1 to hammer out final decisions, with the goal of presenting a reform package before the parliamentary summer recess in mid-July.
Behind the political choreography sits a stark financial picture. An analysis by Oliver Coste estimates that the average cost of cutting jobs in Germany equals about 31 months’ salary per dismissed employee. In Switzerland, where employers face far fewer restrictions on firing, the figure is just 2.5 months’ salary. That makes dismissal nearly twelve times more expensive in Germany. The burden shows up in corporate balance sheets: since 2024, DAX-listed companies alone have paid out 16 billion euros in severance.
Economists have floated various reform models. Markus Brunnermeier and Stefan Kolev propose scrapping dismissal protection entirely for high earners. CDU Economics Minister Anna Reiche and SPD Finance Minister Lars Klingbeil have signaled openness to discussing the idea — though no formal proposal has been tabled.
The two sides of the labor market remain far apart. Employers demand comprehensive flexibility. The unions, led by DGB chairwoman Yasmin Fahimi, reject any focus on cuts alone. Fahimi instead calls for a wealth tax and a mandatory company pension. Chancellor Merz, in a government statement on June 11, appealed for optimism and urged the public to support the reform course.
The opposition — Greens, Left Party, and AfD — reacted with skepticism, pointing to the lack of immediate results. The coalition now has less than five weeks to turn a broad agreement on the need for change into a specific legislative package.
