As a reaction to contain rising social security expenditure due to high unemployment rates the Schroeder administration launched several labour market reforms in the early 2000s whose impact lasts until today. By cutting social welfare, rationalizing the operation methods of the employment offices and making the employment law more flexible, the social democrat-green coalition created a double-edged sword. On the one hand, due to the new flexibility of the labour market, including measures like part-time employment and job sharing, nominal unemployment increases slowed down and eventually started to decrease. On the other hand, the reforms led to a growing low-pay sector, an increase of atypical employment and thus a higher risk of poverty. These negative consequences of the so called ‘’Agenda 2010’’ reforms constitute a major challenge for the labour market policies of the current government and require new measures like the recent implementation of minimum wage or stricter regulation of labour subcontracting.