The Social Component Of The Economic System : Germany

One major reason why it has been easier to maintain social har- mony in Germany than in other countries is that there is a dense social security network. Social protection is considerable, especially for the working community. Whether an employee is old or sick, injured by accident or jobless, affected by the bankruptcy of his or her employer or undergoing retraining for a more promising occupation - most of the financial hardships are cushioned by the welfare system. It is based on solidarity: Those in employment pay contributions to the various branches of the social insurance system. It extends far beyond the individual employee, encompassing the child benefit, housing supplements, social assistance for the needy and indemnification for war victims. Expenditure on social security is high.

In 1994 it rose to 34.1 percent of GDP, largely due to the inclusion of the new states. It is becoming increasingly clear that this high share of GDP consumed by the social security system and the burden of the contributions required to finance it pose a threat to Germany’s competitiveness and employment outlook. This burden must be alleviated without impairing the high level of social security. The Federal Government therefore aims to restructure the social state in a way that will encourage greater personal responsibility and focus on the core functions of the social security system.