Germany’s coalition government aims to boost labor market flexibility with extended job contracts and eased dismissal rules.

Germany’s coalition government, led by Chancellor Friedrich Merz, has announced a sweeping labor market reform package aimed at increasing flexibility for businesses. Key measures include extending fixed-term job contracts to up to 48 months with six possible renewals, easing dismissal rules for high earners earning up to €15,000 per month, and providing tax incentives for severance payments tied to rapid reemployment. The reforms also propose higher tax exemptions for Sunday and holiday bonuses.

Additional initiatives include abolishing phone-based sick leave certifications, requiring physical documentation from day one of illness, and launching a ‘second chance’ program to reduce the number of youth without educational or vocational qualifications. While the coalition plans to discuss broader changes to labor laws, such as transitioning from daily to weekly maximum working hours, reactions from economists and unions remain mixed. Critics argue the package lacks transformative impact, calling it more symbolic than substantive.