Abstract A key strategy to address Germany’s low growth potential and stretched fiscal position lies in tapping into the country’s dormant labour potential. This study illustrates the substantial macroeconomic and fiscal impacts of activating unused labour potential using SOEP data and the RWI’s EMSIM microsimulation model. Three scenarios are simulated with differing average weekly working hours for activated individuals. Each assumes the activation of 4.7 million non-employed individuals under 65. Additionally, labour force participation among people aged 65 to 74 is raised to levels observed in Sweden. Even modest activation leads to notable gains: GDP could rise by 8.3 to 12.3%, and annual net fiscal benefits range from 94 to 143 billion €. The findings suggest that mobilising dormant labour reserves could be a powerful strategy to strengthen economic resilience and public finances with relatively low policy costs.
Isaak et al. (Thu,) studied this question.