Old Europe’s Social Model – A Reason of Low Growth? The Case of Germany

This paper discusses the goal conflict between social protection and economic growth as well as employment. Taking the German economy as an example for the large continental economies of Old Europe, it analyzes twenty mechanisms that affect the fundamentals of the economy negatively and imply low growth and high unemployment. An empirical index is constructed. In the period 1960-2005, an increase in the social protection index goes together with a decline in the GDP growth rate by 2.6 percentage points.