The “fourth solution”: The gigantic workforce potential that politicians simply ignore

Expensive tax trap: Why work isn't worthwhile for hundreds of thousands of women in Germany

Hidden Millions: Why the Skilled Worker Shortage Is Really a Daycare Problem

Germany is desperately searching for staff. To tackle the glaring shortage of skilled workers, the political debate has been relentlessly circling the same three instruments for years: more immigration, a higher retirement age, or extended working hours. But while politicians focus on these seemingly quick fixes, a gigantic domestic potential remains untapped. Millions of people – predominantly well-educated women – would like to work or increase their working hours, but are systematically prevented from doing so by rigid structures. The real reason for the staffing crisis is not simply a labor market problem, but a massive infrastructure deficit: a lack of childcare places, inadequate all-day care at schools, and a tax system that effectively penalizes the employment of secondary earners. It is time to turn our attention to the uncomfortable "fourth solution" – a solution that requires billions in investment, but is the only one that can sustainably secure Germany's economic future.

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Convenient symptom management instead of genuine root cause analysis

The fourth solution: Why Germany's skilled worker shortage is actually a childcare infrastructure problem

For years, the German debate on the skilled worker shortage has revolved around the same three answers: working longer, retiring later, and increasing immigration. All three measures have a crucial advantage from a political perspective: they can be implemented relatively quickly and with manageable administrative effort. A law to raise the retirement age, a reform of residency law, or an adjustment of working time regulations can be passed and promoted within a single legislative term. However, it is precisely this political laziness that is the reason why a fourth solution, at least as economically effective, remains systematically neglected.

The invisible millions of official statistics

In May 2026, the Federal Statistical Office published the latest figures on the untapped labor potential for 2025. According to these figures, almost 4.9 million people aged 15 to 74 who were not in the labor force desired employment, an increase of over 240,000 people, or 5.2 percent, compared to the previous year. This potential comprises nearly 1.7 million unemployed individuals and over 3.2 million people in the so-called "hidden labor reserve." The hidden labor reserve is a statistical category that is practically nonexistent in public discourse, despite its high economic relevance. It refers to people without work who fundamentally want to work but are either not available in the short term or are not actively seeking employment and are therefore not counted as unemployed according to the criteria of the International Labour Organization. They do not appear in any official unemployment figures and are thus effectively invisible to the political process, even though they are closer to the labor market than the term "inactive person" suggests.

Caregiving responsibilities as a gender-specific barrier to employment

Within the hidden labor reserve, a striking pattern emerges according to gender and age group. According to the initial results of the 2025 microcensus, approximately 354,000 women aged 25 to 59 in the hidden labor reserve stated that they were currently unable to take up employment due to caregiving responsibilities, representing about 31 percent of this group. For men in the same age group, this applied to only around 35,000 to 40,000 individuals, or less than 5 percent. This difference of more than eightfold cannot be explained solely by differing preferences, but rather points to a structural imbalance in the distribution of care work and a lack of institutional support. The qualification level of these women is also telling: almost 62 percent of them have completed vocational training or hold a university entrance qualification. These are therefore not predominantly low-skilled individuals without job prospects, but rather qualified professionals who could be in short supply precisely in those occupational fields where companies are desperately seeking workers. At the macroeconomic level, this pattern is also reflected in the overall size of the hidden reserve: with a female share of 56.8 percent, women carry the vast majority of this untapped potential.

The second underestimated reserve: involuntary part-time work

Besides the hidden labor reserve, there is a second, even larger group that receives little attention in public debate: involuntarily part-time workers. According to the final results of the 2024 microcensus, of the 13.1 million part-time workers in Germany, around 4.8 percent stated that they would like to work full-time but had not found a suitable position. This equates to roughly 630,000 people who are already integrated into the labor market, experienced, and actively employed, but whose labor is only partially utilized. By comparison, another 27.9 percent of part-time workers choose to work part-time, while a significant proportion cite family care responsibilities as the primary reason for their reduced hours. Taken together, this paints a picture of several million people who are either completely outside the labor market or involuntarily reduce their working hours, even though they could and would like to work more.

Why three simple levers are politically favored

The explanation for this imbalance in political priorities lies in the differing complexity of implementing the available measures. Extending working life or reforming working time laws primarily affects the relationship between the state and those already employed and can be managed relatively quickly through legislative changes. While increasing immigration requires adjustments to residency laws and administrative procedures, the necessary political instruments have been established since the recent skilled immigration laws. Activating the hidden labor reserve and converting involuntary part-time work into full-time employment, on the other hand, require a fundamentally different approach: building physical and institutional infrastructure that must be planned, financed, and staffed over several years.

What would real activation specifically require?

To truly integrate women with caregiving responsibilities into the labor market, more than just warm words in coalition agreements are needed. Sufficient childcare places are essential, along with reliable full-day care including effective holiday programs, opening hours compatible with full-time employment, and an education system that isn't primarily dependent on the availability of a stay-at-home parent. Furthermore, the tax and social security system must be structured so that a second income within the household is genuinely worthwhile, rather than being devalued by disproportionate marginal taxation. Each of these elements requires not only political will, but above all, time, money, and sustained effort over several legislative periods, which structurally disadvantages this solution in day-to-day politics.

The childcare deficit in numbers

The quantitative extent of the childcare problem can be well documented empirically. By 2025, Germany was projected to lack approximately 300,000 childcare places for children under three, representing about 14.2 percent of all children in this age group. Parents of a total of 1.1 million children under three desired childcare places, but only around 800,000 children were actually receiving institutional care, meaning that one in seven children remained without a place. The regional distribution of this gap is highly uneven: North Rhine-Westphalia has the largest absolute shortage of childcare places, with around 85,000 missing, while Rhineland-Palatinate and Saarland are also particularly affected, with a shortage of almost 19 percent of children. Forecasts from the Federal Ministry for Family Affairs predict that around 189,000 additional childcare places for children under three will be needed in 2026 alone to meet parental demand, and that between 85,000 and 151,000 more places will be required in West Germany by 2035, in addition to the current number. There is also a significant need for expansion of full-day care for primary school children in West Germany, while East Germany and Hamburg have sufficient capacity. This west-east divide is historically rooted and reflects the fact that a comprehensive childcare infrastructure was established earlier in the former GDR, while West German municipalities are still struggling with the consequences of decades of underinvestment.

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The tax system as a hidden impediment to earnings

Economic opportunities squandered: Why Germany is pursuing the wrong solutions to the skilled worker shortage

In addition to the lack of childcare infrastructure, Germany's joint tax assessment system for married couples also acts as a structural barrier to the employment of second-earner women. Under the current splitting procedure, the spouses' combined taxable income is halved, the tax due on that amount is calculated and then doubled, resulting in both partners being subject to the marginal tax rate of half their combined income. For the person with the lower income, in the vast majority of cases the wife, this means a significantly higher marginal tax rate than would be the case with separate assessments, so that even the first euro earned is taxed at a rate of around 27 percent. This splitting advantage also decreases rapidly as the second income increases: With a first-earner income of €10,000, the advantage drops to around €1,456 per year, and at €20,000 to just €654. Empirical studies quantify the negative effect of joint taxation of married couples on the labor force participation of married women at more than 2 percentage points compared to individual taxation alone. Since men's labor supply is empirically far less elastic in its response to net wage changes than women's, a reform towards individual taxation would disproportionately strengthen female labor force participation. Proponents of the existing system, on the other hand, point to the constitutionally enshrined principle of horizontal tax justice between married couples with the same total income, regardless of its distribution between partners, and warn against the one-sided promotion of a particular lifestyle by abolishing joint taxation.

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The economic price of inaction

The economic damage caused by the skills shortage can now be quantified quite precisely. According to calculations by the German Economic Institute (IW), around 573,000 skilled workers were missing from the German labor market in 2024, resulting in a loss of approximately €49 billion in production potential for the country, or 1.1 percent of its economic output. This loss is expected to reach around €74 billion by 2027, and this figure does not yet include consequential costs such as increased workload stress or lost innovation. An even more pessimistic estimate by the consulting firm BCG projects annual losses for Germany of over €86 billion, based on the assumption that each missing worker would theoretically contribute around €87,000 in economic output per year. These figures illustrate that the skills shortage is not a niche issue of social policy, but rather one of the key obstacles to growth in the German economy, the financial impact of which is likely to significantly exceed the costs of a substantial expansion of childcare infrastructure in the medium term.

A structural population trend is intensifying the pressure

The situation is exacerbated by demographic trends, which are putting pressure on Germany's entire labor force potential. Without immigration and assuming unchanged labor force participation, the labor force potential would decline by 6.3 million by 2030 and by as much as 17.2 million by 2060, according to calculations by the Institute for Employment Research. Currently, the domestic labor force potential stands at around 48.6 million workers, although the annual growth rate has already been declining in recent years. At the same time, around 1.4 million jobs remained unfilled in Germany in the fourth quarter of 2024. These figures make it clear that mobilizing domestic resources is not an optional add-on to immigration policy, but rather, given the shrinking demographic base, a necessary complement to meet medium-term labor demand.

Immigration as a convenient but incomplete answer

The political preference for immigration as a solution to the skilled worker shortage is evident in the repeated passage of new legislative packages on skilled worker immigration, while structural reform of childcare is progressing much more slowly. Immigration can fill quantitative gaps in the short term, but it does not replace the need to fully utilize the already existing, often highly qualified, workforce potential within the country. Moreover, immigration itself is neither free nor a smooth process: language courses, recognition procedures for foreign qualifications, and integration into the labor market also require time and institutional resources. Those who rely solely on immigration while hundreds of thousands of domestic skilled workers remain on the margins of the labor market due to a lack of childcare places are engaging in economically questionable priorities.

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From labor market problem to infrastructure problem

The key finding from analyzing this data is that Germany's skilled worker shortage is systematically misrepresented in the public debate. It is treated as if it were purely a labor market problem that can be solved by longer working hours, later retirement, or increased immigration. In reality, it is to a significant extent an infrastructure problem that can only be solved through long-term investments in childcare, all-day schools, and a more employment-friendly tax system. The figures on the hidden labor reserve and involuntary part-time work show that a considerable portion of the sought-after workforce is already present in the country, often highly qualified, and fundamentally willing to work. What is lacking is not the willingness of those affected, but rather the institutional framework to translate this willingness into actual employment.

Why short-term thinking becomes more expensive in the long run

The political logic of prioritizing short-term measures over long-term, but more costly, reforms may be understandable from the perspective of individual legislative periods, but it is short-sighted from a macroeconomic perspective. Every year that hundreds of thousands of well-educated women are excluded from the labor market due to a lack of childcare infrastructure, this results in billions of euros in economic opportunity costs, which are added to the already mentioned overall costs of the skilled labor shortage. At the same time, demographic trends are intensifying the pressure year by year, meaning that postponing the necessary infrastructure expansion will not make the solution cheaper, but rather more expensive in the long run. A consistent expansion of childcare, reliable all-day schooling, and a reform of the tax incentives for secondary earners, planned over several legislative periods, would not only increase the female employment rate but also make a substantial contribution to securing Germany's economic competitiveness. The data suggest that the fourth solution would be at least as economically effective as the three established answers, but continues to receive too little political attention.

Konrad Wolfenstein

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