The strength of the German labour market response to the financial crisis of 2008-09 demonstrated the benefits of past labour market reforms, which raised work incentives, improved job matching and increased working hour flexibility. Going forward, the government should build on this success and address the remaining challenges which include raising the labour participation of females and older workers (which among other things will necessitate adjustments to the tax and education system) and fostering migration, notably of skilled workers. The significant ageing-related decline in the labour force exemplifies the urgency of further structural reforms in this area.