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Is Germany's skilled-labor shortage a myth?

Insa Wrede in Bonn, Germany
February 21, 2023

Whether it's IT specialists, nurses or even hairdressers — Germany is lacking skilled personnel seemingly everywhere. Is the skills gap homemade, and ultimately just a problem of wages and working conditions?

A "Employees wanted" board at a restaurant
Boards with 'Employees wanted' written on them have become a common sight in GermanyImage: Jens Büttner/dpa/picture alliance

The labor market in the western German town of Bonn seems broken these days. Not for workers, mind you ­— employers, instead, are desperately looking for staff. Many cafes in the town center feature a notice reading "employees wanted."

Even a local shoemaker complains that his children don't want to take over his business, as they prefer to study at university. It's hopeless even to find an apprentice, he told DW.

The same goes for the blacksmith at the equestrian center nearby, who is also desperate because the apprentice he trained for several years didn't want to stay on. Finding an adequate replacement is next to impossible in the current economic situation. One of his neighbors who works for a large corporation, the shoemaker went on, is also on the lookout for staff — but even larger companies aren't able to find the IT specialists they need.

In a recent labor market report, the Economy Ministry said Germany's shortage of skilled workers is "acutely affecting" many companies' potential to grow.

"More than 50% of companies see this as the greatest threat to their business development," the report noted, adding that the shortages in many sectors are likely to get worse as members of the so-called baby-boom generation retire in the coming years. By 2035, the gloomy outlook concluded, Germany will be short some 7 million skilled workers.

Where did all the skilled workers go?

Record employment and low wages

But does Germany really have too few skilled workers? Labor market expert and economist Simon Jäger doesn't think so. The head of the Institute of Labor Economics in Bonn told DW that the country's high employment rate "speaks against a shortage of skilled workers."

And indeed, with about 46 million employed Germans, the level of employment is at an all-time high in Europe's largest economy. Jäger noted that young people entering the labor market in the country are generally better educated than those who are retiring.

What's astonishing, though, is that real German wages, meaning wage growth minus inflation, fell by 5.7% last year. "That doesn't fit with the thesis that labor is extremely scarce," he said, explaining that in a free market economy prices are formed on the basis of supply and demand, which is why a scarce good, like labor in this case, should become more expensive rather than cheaper.

A picture of Simon Jäger
Jäger earned his doctorate at Harvard University and went on to teach at the Massachusetts Institute of TechnologyImage: David Degner/New York Times

Germany's untapped potential

Jäger thinks the German labor market is organized in a fashion that is not really conducive to overcoming the current skills gap. The potential of untapped labor is huge, said the economist.

Still, there is a massive "silent reserve" of labor in Germany, as he described those people "who like to work, but cannot enter the labor market" for one reason or the other. In addition, there's a large segment of part-time workers who would be willing to work full time, if conditions permitted.

For instance, tax benefits for married couples under a so-called married filing jointly scheme would incentivize, for example, women to work less than their husbands or hold them back from taking up a job at all, Jäger said.

A survey by the Federal Employment Agency has found that better child care options and more flexible working hours for working mothers could boost female labor participation. Of those part-time employees who work only 20 hours a week, some 11% said they would like to work longer, the survey found, with the primary reason given for working fewer hours being a lack of care options for children or the elderly.

In addition, Federal Employment Agency chief Andrea Nahles sees huge potential in keeping elderly workers in their jobs beyond retirement age. "More than a million workers would be willing to continue working," Nahles said recently, adding that many of them were interested in "doing meaningful work on a part-time basis." Employers should try to find creative solutions for them, she said.

How to deploy scarce resources

Jäger cited the "good example of a hairdresser, who was desperately looking for staff" in his hometown of Bonn. The salon owner had offered her personnel to work only four days a week, and received many job applications in return.

A woman trainee at a vocational training centre assembling electronic components
Many women drop out of the workforce or choose to work part time amid a lack of corporate and state support for them in the workplaceImage: Rupert Oberhäuser/imago images

Introducing a better work-life balance by cutting working hours could improve the situation in many other professions, too, said Jäger. In nursing, for example, where he said more than 200,000 people had left the profession in Germany and might want to return to their former jobs once working conditions and pay are made more attractive.

"In other words, at the end of the day, the issue of labor shortages is a matter of scarce resources. While we don't have an infinite number of workers, the question arises: Where do we want to use this scarce resource of labor?"

Stefan Schaible, a board member at Roland Berger consultancy, believes companies need to "radically change what they offer in terms of work and life arrangements." Employers who still don't understand that they need to invest in their staff are "in massive trouble," he told DW.

Germany still needs 'skilled immigration to keep our economy running'

German Labor Minister Hubertus Heil believes that tapping the country's hidden labor potential won't be enough to overcome the skills gap. "Even if we pulled out all the stops domestically, we still need additional skilled immigration to keep our economy running," he said recently.

Foreigners wait outside the Berlin Immigration Office for assistance in regulating their legal residency status
Germany is a hot spot for migrants, but only a few of those who arrive in the country are qualified to workImage: Adam Berry/Getty Images

Labor market experts have estimated that Germany would need 400,000 foreigners per year to close the widening gap within the next decade or so. At the moment, only about 60,000 people are coming via the government's skilled immigration programs.

Jäger thinks Germany has much to offer to skilled professionals from abroad. "When people are asked to which countries they would like to immigrate, Germany regularly ranks high, along with the US, some other European countries and New Zealand," he said.

Although the German language is proving to be a hurdle, a functioning rules-based state and a stable political system are "advantages that are important from a long-term perspective of immigrants," he said. In addition, the level of income migrants can generate and what they can afford with it would matter.

But most importantly, he said, was a culture that makes a person feel welcome and the prospect of becoming a German citizen one day.

This article was originally published in German.

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