The former England boss held crisis talks with the club's hierarchy last month after Wolves finished the first half of the season in 13th place in the Bundesliga and were knocked out of the DFB-Pokal by second division Energie Cottbus.
He was given a vote of confidence and Germany international Schafer is pleased he has not been sacked.
"We played very badly in the first half of the season. Every one of us has to ask themselves questions," he said on the club website from their winter training camp in Marbella.
"But if we continue as we have started now in training and everyone gets it into their heads that it is just about hard work, then we are already a big step further on.
"We are all happy that the coach has stayed."
Schafer also admitted striker Edin Dzeko, on the verge of a move to Manchester City, would be tough to replace.
"He was for me the best striker in the division and certainly one of the best three to five in Europe," he said. "In this respect it is without question a big loss which will he hard to compensate for."