Germany’s 2024 Bürgergeld (citizen’s allowance) increase raises concerns about its impact on work incentives, with experts predicting a possible rise in undeclared work.
As of January 1, 2024, Germany saw an increase in the Bürgergeld (citizen’s allowance), with the monthly rate for single individuals rising by €61 to €563. This increase has sparked debates over whether low-income earners still have sufficient incentives to work. Additionally, experts are concerned that the rise in Bürgergeld may lead to an increase in undeclared work (Schwarzarbeit) across the country. According to a forecast by the Institute for Applied Economic Research in Tübingen (IAW), as reported by Tagesschau.de, the value of services illegally produced through undeclared work could increase by €38 billion, potentially reaching a total of €481 billion in 2024.
Undeclared work could account for 11.3% of GDP
Economist Professor Friedrich Schneider, speaking at a lecture for the Wirtschaftsbeirat Bayern e.V., highlighted that undeclared work is often seen as a “tax rebellion of the common man.” Merkur.de reported that for 2024, the shadow economy is expected to account for 11.3% of Germany’s Gross Domestic Product (GDP). The issue becomes critical if undeclared work rises significantly, resulting in substantial tax revenue losses for the state.
Schneider also pointed out that many people feel disincentivized to work, especially for low wages, when their net income remains minimal after taxes. He mentioned that young people, in particular, are less inclined to work full-time for their entire lives, as they see little chance of affording a home. Without clear prospects from the state, the willingness to work decreases, according to Schneider.
Undeclared work in various sectors
Bild.de reports that undeclared work is particularly prevalent in the construction industry, among tradespeople (such as electricians and plumbers), and in household-related services like cleaning. It is estimated that there are between 12 and 15 million undeclared workers in Germany, with around 400,000 to 500,000 of them also receiving Bürgergeld, according to Schneider.
Economist Bernhard Boockmann, in a podcast titled “Ist das eine Blase?” on Zeit.de, explained that undeclared work is difficult to quantify, but it is likely that many cases go unreported. Boockmann noted that the Bürgergeld, particularly with the non-deductible allowance of €100 for additional earnings, creates strong disincentives for people to take up regular employment. Systematically exploiting this allowance could lead to social welfare fraud, with potential prison sentences for offenders.
Diverging views on the impact of Bürgergeld on undeclared work
While some experts anticipate that the increase in Bürgergeld may reduce the inclination towards illegal earnings, others believe it could discourage recipients from seeking legal employment. However, the return to the full VAT rate in the gastronomy sector could have the opposite effect, potentially encouraging more undeclared work, according to Tagesschau.de.
