Social Reforms in the AI Transformation

Dr. Anselm Küsters, LL.M.

Dr. Matthias Kullas

As early as 2027, Germany’s social security schemes face funding shortfalls of over 50 billion euros. AI threatens to widen such shortfalls in the long term through a gradual shift from wage income to capital income.
AI is largely invisible to statistical leading indicators. Initially, AI reduces entry-level positions and new hires without this being reflected in traditional labour market statistics.
The cep is calling for AI satellite accounts, a binding AI review mechanism as part of pension reform, and clear rules on how the labour factor can share in AI-generated capital gains.

As early as next year, Germany’s social security systems will face funding shortfalls totalling over 50 billion euros. The Centre for European Policy (cep) shows in a new policy paper that the current reform debates underestimate the extent to which artificial intelligence (AI) could widen these gaps even further in the long term. As the financing of Germany’s social security systems relies heavily on the wage bill, a shift towards investment income structurally weakens their contribution base.

cepInput

According to the authors’ assessment, the initial effects of the current AI transformation are not necessarily likely to manifest themselves in large-scale redundancies. Initially, AI will take over individual tasks and slow down recruitment. According to US data, the projected employment growth rate for those entering the labour market falls by 0.6 percentage points for every ten percentage points of increased AI exposure in a profession.

The cep is calling for new statistical tools, including so-called AI satellite accounts and early-warning indicators for changes in new recruitment, wages and AI-exposed occupations. Social security systems should also include a binding, legally enshrined review mechanism that regularly checks whether the wage share and contribution base are shifting as a result of AI, and which automatically triggers a review if defined thresholds are exceeded. “The Pensions Commission has made sound projections for the coming years. But a reform package without a readjustment mechanism is built on sand as soon as the wage share shifts,” says cep economist Matthias Kullas.

Furthermore, it must be clarified at an early stage how the labour sector can share in the capital gains generated by AI. “Whilst in the US even Bernie Sanders is calling for a sovereign wealth fund with a stake in AI companies, Germany is still debating share-based pensions based on the old model. Ultimately, however, it is not just a question of whether everyone shares in AI profits, but also of who controls the infrastructure on which these profits are generated. Europe therefore needs, at least in part, its own data centres and cloud capacities, because only those who control the value creation themselves can share in its returns in real terms, rather than merely symbolically,” says cep AI expert Anselm Küsters.