ABSTRACT
Within the European Union, Germany is still the ‘social insurance state’ par excellence. In 2007, 46 percent of the general government’s outlays ran through the various social insurance schemes, and they disbursed roughly two-thirds of total social expenditure (according to national calculations). Social insurance spending amounted to almost one fifth of GDP which demonstrates the substantial impact of these social security institutions on the economy and on people’s living conditions. The predominance of the institutionally segmented social insurance system stems from the still effective Bismarckian legacy that made Germany the prototype for a comparatively large and, at the same time, transfer-heavy welfare state. 1 The strong reliance on earnings-related contributions – the combined rate paid by employers and employees standing at 40 percent in November 2008 – is widely regarded as the major weakness of the arrangement, impeding employment growth that, in turn, would ease the financial stress of social insurance and state budgets.
