Prosperity and social security: This is how pension and welfare systems influence national productivity


A country’s social policy has a major impact on productivity (Image:, geralt (CC0 Public Domain))

Even if the health and pension system is often criticized in this country: It lets you fall asleep calmly knowing that the state will take care of you in the event of illness or loss of your home, for example, and you will also have a regular care after the end of your active professional career Income supplied. The absence of these important factors also has an impact on national productivity.

Welfare Systems: How Do They Affect Productivity?

Welfare is an important part of social policy in any country. In Germany there was a system upheaval in 2005 due to the Hartz IV reform. In contrast to unemployment benefit II, contributions to the pension insurance were previously paid in with the so-called “unemployment benefit” and there was also no compulsion to take on certain jobs. Put simply: the social hammock was a bit more comfortable back then.

However, Germany is in line with the international trend. Hardly any country still has a generous welfare system and most countries have also made cuts since the 1980s. One of the first to start dismantling the welfare state was then British Prime Minister Margaret Thatcher, which earned her the nickname “Iron Lady”.

On the one hand, this has the consequence that the state has to spend less money on individual people if necessary. However, these systems carry the risk of creating a new class of society. It is no coincidence that the phrase “I go resin” has spread in Germany. Once trapped in the system at the lowest level, it becomes more and more difficult for those affected to escape from it. Status weighs on them like a curse.

These systems have two completely opposite effects on national productivity. On the one hand, a good part of the possible work performance is lost because the beneficiaries have often adjusted to their low financial level and therefore see no incentive to take a job again. Above all, because this is synonymous with the loss of various grants that they claim.

On the other hand, many people are simply afraid of “slipping” into this lower class if they lose their jobs. As a result, if they lose their job, they also agree to accept lower-income and “inferior” jobs. However, these are exactly those jobs that could offer the Hartz IV recipients a way out of their situation, but are now blocked elsewhere.

However, it is also important not to confuse the terms “unemployed” and “not employed”. The unemployed are assumed to be looking for a job. In contrast, people who are not gainfully employed are people who are excluded from the labor market due to their age (e.g. children) or who pursue another activity that is not paid, such as working in their own household or doing voluntary work.

It is important here that the national systems offer these people the opportunity to be insured with another person, for example their parents or spouse. In Germany, spouses benefit from free family insurance through the husband or the wife through statutory health insurance (GKV). However, this is subject to a certain income limit.

Especially for families where the spouse or partner works in the civil service, the private health insurance (PKV) offers significant advantages and reduces the costs for health protection to a minimum. The PKV for spouses thus enables families to have social security even if the partner is not in a paid employment relationship.

Pension systems: the individual models in a country comparison

According to a study by the consulting firm Mercer, in which the individual pension systems of the countries around the world were compared, Germany ranks in the upper middle field. Above all, the Scandinavian countries and Australia land in the top positions. In the last three places, however, with Turkey, Argentina and Thailand are countries from completely different areas of the world.

However, especially in terms of sustainability, Germany lags far behind other systems. But this is exactly what is required so that the system can also be maintained in the future. The residents in this country are therefore not unjustifiably afraid of being affected by poverty in old age themselves at some point if they do not take appropriate additional precautions.

According to Mercer, the German system can only be saved from collapse if the pay-as-you-go system is supplemented by funded models and the participation rates in company pension schemes are significantly increased.

Measures are also needed to increase the employment rate of older workers. Contrary to the opinion of many Germans, this has been working better and better for years. In the past 20 years, the employment rate of 60 to 64 year olds has almost tripled and at over 56 percent is no longer far below the average for all age groups.

This effect is due to the expiry of the 58 rule in 2008. Until then, unemployed people aged 58 and over no longer had to look for a new job and still received their unemployment benefit until they retired.

A prerequisite for getting older people a job is a corresponding offer of available jobs. Here, the policy of the respective state is called upon to set appropriate incentives for the companies. If that succeeds, it will also have a decisive influence on the productivity of the country as a whole.

The simple calculation: more people in employment generally also ensure higher economic output. In the technical jargon, what is called human capital is used here.

The decisive factor here is not just the quantity, but also the quality. It is therefore important as a state to ensure that people receive good care in the event of illness. In this way, they can be used again as quickly as possible and are subsequently available again as human capital. Education plays a key role in quality: the better the tool, the higher the output. This also applies when people are seen as tools for economic performance.


Pension and welfare systems and the associated prosperity of the people are not an end in themselves of a state, but are geared towards ensuring the highest possible productivity. Doing without it therefore only brings a short-term cost advantage, but leads to a loss of productivity in the long term.


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