Economy · Work incentives
When does work pay?
“Leistung muss sich lohnen” — performance must pay — has been Carsten Linnemann’s most repeated phrase. This page tests it in two strictly separated tracks: what economic analysis says about the reward for work, and what he and the CDU propose.
Track A
Economic analysis
Blocks marked ECONOMIC ANALYSIS describe how taxes, contributions, wages and benefits interact. They use official data and established mechanisms, and take no side.
Track B
Political position
Blocks marked POLITICAL POSITION set out what Linnemann and the CDU argue and what has been legislated. They are positions, not findings, and are followed by the main objections.
From labour cost to take-home pay
Every euro an employer spends on a job passes through three filters before it reaches the employee: social contributions (employer and employee shares), income tax and, for low earners, the withdrawal of benefits.
Employee share of social contributions
SourceStatutory rates 2026: pension 18.6%, health 14.6% plus official average additional contribution 2.9%, care 3.6%, unemployment 2.6%, each split equally (BMG; DRV; health insurers). Childless members aged 23+ pay a care surcharge of 0.6 points on top. Employee total: about 21.2% of gross pay.
Combined, contribution rates add up to roughly 42.3% of gross pay in 2026, shared between employer and employee up to the contribution ceilings. Income tax comes on top: in 2026 the basic tax-free allowance is €12,348, the 42% rate applies from €69,879 of taxable income for a single person, and 45% from €277,826.
The OECD’s Taxing Wages 2026 report ranks Germany second only to Belgium for the combined burden of income tax and social contributions on an average single worker, as a share of total labour costs. That is the empirical basis of the “work must pay” argument at average wages.
What the comparison does not show is what the contributions buy. German social contributions fund pension entitlements, health and care cover for dependants, and unemployment insurance — benefits that in some countries are financed through taxes or private insurance and therefore do not appear in the wedge in the same way.
At the bottom: minimum wage and benefit withdrawal
The minimum wage sets a floor under hourly pay; the Federal Government says more than six million people benefit from the two-step rise. But whether additional hours “pay” for low earners depends less on the hourly wage than on what happens to benefits as earnings rise.
In a means-tested system, each additional euro earned reduces entitlement to basic income support, and often to housing benefit or the child supplement as well. Allowances for earned income soften this, but economists have long pointed out that in certain earnings ranges and household types, very little of an extra euro is left after withdrawal — sometimes nothing at all, because of how different benefits interact. The effect is strongest for single parents and families with several children, and for moves from a mini-job to a larger part-time job.
This is an argument about design, not about the level of benefits. A system can be generous and still reward extra work, or modest and still penalise it. Reform proposals across the spectrum therefore focus on harmonising the withdrawal rates of different benefits.
Hours, part-time work and family
Part-time at a record
The IAB put the part-time rate at 39.9% in 2025, the highest annual value recorded. Part-time employees worked about 18.7 hours a week on average; total hours worked fell by 0.2% to 61.26bn.
Family responsibilities
Part-time work is concentrated among women, and closely tied to childcare and to caring for relatives. Where childcare places or care services are missing, longer hours may simply not be possible, whatever the tax incentive. The IAB has argued that the greater untapped potential lies in women’s career development.
Productivity
Output per hour worked rose by only 0.4% in 2025 (Destatis). With a shrinking workforce, the long-run reward for work — rising real wages — depends more on productivity per hour than on the number of hours.
Labour shortages
The BA counted 157 shortage occupations in 2025. In a shortage, the gain from an additional hour accrues to the employer and to the social-insurance systems as well as to the worker, which is why incentives for longer hours have become an economic as well as a social argument.
Older workers
People past retirement age face a different calculation: their pension is already secure and income tax applies to additional earnings. Incentives can tip the decision to continue working, but health and job type matter more for many.
What the data cannot say
Whether a person “should” work more is a value question. Analysis can show where the system discourages work that people want to do; it cannot decide how much work a society should expect.
“Leistung muss sich lohnen”: what he proposes
Positions documented from Bundestag speeches and the CDU’s Agenda 2030 (January 2025). Status as of October 2026.
Neue Grundsicherung
The Bürgergeld was replaced by a new basic income system, passed by the Bundestag on 5 March 2026 and taking effect in stages from mid-2026. It restores the priority of placement in work, introduces graduated benefit reductions for repeatedly missed appointments, tiers protected assets by age and caps housing costs. Linnemann was one of the leading advocates.
Aktivrente
Employees who keep working past the statutory retirement age can earn up to €2,000 a month free of income tax, from 1 January 2026. Health and care contributions remain payable. He called it the most innovative element of the 2025 pension package.
Tax-free overtime supplements
Agenda 2030 demand, included in the 2025 coalition agreement for full-time employees, with a separate premium planned for part-time workers who increase their hours. Legislation in preparation.
Weekly maximum working time
Replacing the daily limit with a weekly one. A draft circulated in June 2026; not adopted by the cabinet as of October 2026.
Income tax relief for the middle
Agenda 2030: flatten the tariff and start the top rate only at €80,000. Not legislated as of October 2026.
„Wer aber arbeiten kann, muss arbeiten gehen. Leistung muss sich auch für Ältere lohnen.“
05 / POLITICAL POSITION
The reasoning behind it
Linnemann’s argument, as set out in his Bundestag speeches of 2025 and 2026, rests on fairness as much as on economics. In January 2026 he argued that the welfare state had become unfair in some respects: towards those who work and pay for it, and towards jobseekers who are administered rather than placed in work. In the final debate on 5 March 2026 he summarised the aim as a fair system, built on “Fördern und Fordern” — support and obligation.
The second strand is demographic. If the working-age population shrinks, the welfare state can only be financed if more people work, and work longer. The Aktivrente applies that logic to people past retirement age; tax-free overtime and flexible working time apply it to full-time employees.
The third strand links to his current office. As Federal Minister of Health he argues that higher contribution rates make work more expensive for both sides; keeping them stable is, in this reading, also a policy for the reward of work. See tax and social policy.
Objections and replies
In favour of the CDU approach
- Germany’s burden on labour is among the highest in the OECD; lowering it raises the return on work at every income level.
- Clear obligations shorten spells of unemployment, which are harder to end the longer they last.
- The Aktivrente uses the tax system to keep experienced workers in shortage occupations.
- The SPD, in coalition, argued that 97% of basic-income recipients are unaffected by the new sanctions while €4bn goes to qualification and youth support.
Against, or sceptical
- The strongest disincentives arise from benefit withdrawal at low incomes, which sanctions do not fix.
- The Diakonie disputed Linnemann’s July 2024 claim about a six-figure number of total refusers, citing BA data showing that total refusal is rare; the DGB accused him of a contemptuous attitude.
- The Aktivrente is a tax break that mainly benefits pensioners with good jobs and good health; the self-employed and civil servants are excluded.
- Tax-free overtime favours full-time workers, who are disproportionately men, over part-timers.
- Without childcare and long-term care capacity, incentives for longer hours reach their limits.
The debate is less about whether work should pay — nobody argues the opposite — than about which instrument works: lower taxes and levies, stricter obligations, better benefit design, or more care infrastructure.
07 / Summary
So — when does work pay?
Economic analysis: at average wages, work in Germany carries one of the highest tax and contribution burdens in the OECD, though contributions buy insurance entitlements. At low incomes the decisive factor is how benefits are withdrawn as earnings rise. For parents and carers, the availability of care often matters more than any incentive.
Political position: Linnemann and the CDU answer with lower taxes and levies on work, stricter obligations in basic income support and targeted tax breaks for additional work. Two of these measures — the Aktivrente and the Neue Grundsicherung — are law; others remain proposals. Their effects will only be measurable once data for 2026 and 2027 are available.
Sources & further reading
- Federal Government — Minimum wage now €13.90 (Jan 2026)
- Haufe — Social insurance contribution rates 2026
- Federal Ministry of Health — Long-term care insurance facts and figures (contribution rates) (Jul 2026)
- OECD — Taxing Wages 2026 (Apr 2026)
- apotheke adhoc — IAB working-time accounts 2025 (3 Mar 2026)
- Destatis — Gross domestic product 2025 (productivity) (15 Jan 2026)
- Federal Employment Agency — Shortage analysis 2025 (2 Sep 2026)
- Deutscher Bundestag — Debate on labour-market and social policy (15 May 2025)
- Deutscher Bundestag — First reading, Neue Grundsicherung (15 Jan 2026)
- Deutscher Bundestag — Neue Grundsicherung passed (5 Mar 2026)
- Deutscher Bundestag — Pension package and Aktivrente (5 Dec 2025)
- Finanztip — Aktivrente: €24,000 tax-free for working on
- ZDFheute — Criticism of the CDU’s Bürgergeld proposals (Jul 2024)
- Schwäbische Zeitung (dpa) — CDU Agenda 2030 (Jan 2025)