Berlin, August 2026 – Germany’s productivity is growing at an annual rate of just 0.3 percent when averaged over six years. However, calculations by the German Economic Institute indicate that a rate of at least 1.6 percent would be required to safeguard prosperity in the face of an aging population. At the same time, the labor supply is shrinking as increasing numbers of workers retire. Consequently, if output per worker remains on its current growth trajectory, the existing level of prosperity cannot be sustained in the long term.
Productivity growth falls to just 0.3 percent
In the 1980s and 1990s, labor productivity grew by around two percent annually. Since the turn of the millennium, however, this growth has steadily slowed; the most recent six-year average stands at just 0.3 percent. The IW study cites factors such as weak investment, reduced innovation, and the growing share of labor-intensive services as causes.
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This means that weak productivity is coinciding with a trend that Germany can no longer easily offset by adding more workers. The IAB projects that, for the first time, the potential labor force will shrink by 40,000 in 2026, falling to 48.62 million people. Additionally, the number of employed persons is expected to drop by around 90,000. Consequently, a smaller workforce will have to shoulder an increasingly large share of economic output and social welfare costs in the future.
Demographics make higher economic output per worker essential
This issue is particularly evident as the baby boomer generation transitions into retirement. Between now and 2036, an average of around 1.3 million people from this generation will reach retirement age each year. At the same time, only about 800,000 younger people will enter the workforce to replace them. As a result, Germany is losing a significant portion of its available labor potential every year.
However, tapping into unused labor reserves among young adults will not solve the problem in the short term. In 2025, 10.0 percent of 20- to 24-year-olds were neither employed nor in education or training; in 2022, this figure stood at 8.8 percent. Only a quarter of this group was actively seeking a job, while around two-thirds were not available to the labor market.
Funding prosperity will become more difficult without reforms
IW researchers therefore identify five key levers for boosting productivity: digitalization, artificial intelligence, innovation, reduced bureaucracy, and additional investment. A comprehensive reduction in bureaucracy could yield particularly rapid results; based on certain assumptions, the study estimates a potential gain of 1.6 percent within just one year. In the long term, increased spending on research and greater use of AI could also significantly boost economic output.
Calculations by the Bundesbank further demonstrate that bureaucracy itself has become a drag on growth. According to these figures, the associated costs for businesses rose from approximately five percent to around seven percent of annual revenue between 2022 and 2024. This increase may have suppressed overall economic productivity growth by about 0.5 percentage points. Consequently, Germany requires not only an economic recovery but also a sustained increase in value added per employee if incomes, pensions, and social benefits are to remain affordable at current levels.
Author: Blackout News
Sources: Stiftung Familienunternehmen (17.08.26) – Bild (17.08.26) – Statistisches Bundesamt (17.08.26)