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Abstract

The central problem of the German economy is the high costs of labour, driven up by the burden of funding an extensive welfare state through social insurance contributions that operate as payroll taxes on employment. The study identifies the political causes of the long-term rise in non-wage labour costs. It analyses the reforms of the last decade, showing how the multiplicity of veto points in the German political economy has weakened reform initiatives and reduced the prospect for effective reform in the foreseeable future.