When SAP CEO Christian Klein announced last year the reduction of 10,000 jobs while simultaneously building up AI capabilities, his gaze occasionally drifted – perhaps enviously – toward the company’s American competitors. In the fast-moving US software industry, layoffs frequently make headlines, yet companies there are quick to open their chequebooks to attract new skills. What happens in the US swiftly and with little noise becomes, in Germany, a Herculean task – one SAP can certainly manage, but which can push struggling firms to the brink of collapse.

Unlike in the US, where labour laws allow companies to terminate employees without explanation and severance, job cuts at German corporations resemble an obstacle course. Co-determination gives workers’ councils considerable say. Social plans are mandatory, alternative roles or financial compensation are generally unavoidable, and social compatibility has become a political imperative.

This may well be the right approach in a social market economy, where balancing economic and societal concerns is a long-standing and largely successful principle. Many firms – for example in the automotive industry – have earned handsomely over the years and built up sizeable liquidity buffers. There’s little reason to let them dismiss employees who, due to falling sales or outdated skills, no longer fit the company, only to shift the burden to the welfare state. Financial compensation that accounts for years of service and personal circumstances is both appropriate and just.

The situation is quite different at a company like Thyssenkrupp, where the ailing steel division has racked up billions in losses, threatening the very existence of the group. The transition to a leading producer of green steel is both costly and time-consuming, while aggressive price competition from China and waning demand from the automotive sector weigh heavily on the traditional business. Adjustments are unavoidable. With 11,000 jobs set to go, a social plan is required. But the drawn-out and exhausting negotiations to get there are problematic. The repeated failures to restructure the steel division also cast a poor light on Germany’s much-praised model of social partnership. Plans to spin off the division have repeatedly been sabotaged by employee representatives, concerned about changes to the status quo.

The concept of the hive off company” – now also being discussed at Thyssenkrupp – is likewise no shining example of social partnership. These entities are meant to offer workers affected by job cuts a socially responsible bridge into new employment. But what looks good on paper can turn absurd in practice. At Deutsche Telekom, thousands of employees were parked in its subsidiary Vivento – drawing full pay but with nothing to do. The former Siemens unit Communications presents a similarly bizarre case. The company resorted to desperate moves like “selling“ its mobile phone division to China’s BenQ, which sent the unit into bankruptcy just a year later after burning through its generous dowry. Siemens had failed to wind down the unit in a socially responsible way. The lesson is clear: when the obstacle course of restructuring becomes insurmountable, the outcome isn’t social stability – but liquidation. And ultimately, a weakened industrial base.