The authors analyze how Germany has been dealing with its unemployment problem. They find that positive labor market trends in Germany are due less to the economic crisis measures implemented by the government than to the fact that workers have held back on wage demands for years. Nevertheless, the high basic unemployment rate in Germany continues to be a problem. There are no incentives for the unemployed to stop claiming unemployment benefits (ALGII) and take up a low-paid job. The government should remedy this situation by providing market-appropriate training, fiscal incentives, and family friendly measures.