Demographic change and employment
Germany currently finds itself in the midst of a demographic revolution. In the near future, the number of employable persons in Germany will drop and the population will age perceptibly. Based purely on current demographic trends – that is, without taking immigration and the growing participation of women and older people into account – the number of economically active persons would fall from the present figure of approximately 45 million by roughly 8.5 million by 2030; and by a further 8.7 million by 2050. Even by international comparison, the ageing of the labour force is likely to be very marked in Germany over the coming decades. According to estimates by Eurostat, the quotient of people aged 65+ relatively to the working age population (people aged 15-64) will increase: from a current level of 31.8 per cent (2013) to 47.6 per cent in the year 2030; and to 59.2 per cent in the year 2060. By contrast, the EU-average is only expected to rise from a current level of 27.8 per cent to 39.4 per cent in 2030, and to 50.1 per cent in 2060.
By 2020, higher net immigration, an extension of women’s working hours, and a stronger participation rate amongst older people and women with a migration background could compensate for this shortfall in the labour force to a great extent. But after 2020, the number of people who are economically active will drop markedly despite these factors, albeit less dramatically. According to current data, the number of available workers would be a good 3 million fewer in the year 2030 than it is than today. By 2050, a drop of a further 5 million is expected. For this reason, it is crucial to fully exploit the available potential already in the labour market – much more than is currently the case. What is also important is to manage the necessary transition processes in a positive way, including the introduction of a later retirement age, or “pension at 67”, and the promotion of a working culture which is compatible with family life.
According to the long-term projections of the Federal Institute for Vocational Education and Training (BiBB) and the Institute for Employment Research (IAB), shortages could arise predominantly amongst the middle levels of qualification from the middle of the 2020s. This is why Germany is placing great emphasis on maximising the potential of low wage-earners by encouraging further training and qualifications.
By contrast, demand for unskilled workers will drop further. As the supply of unskilled workers will decline less strongly than the demand, it is expected that underemployment will increase amongst this group.
The number of graduates is expected to increase in line with growing interest in degree-level study. If demand for professional workers does not rise in line with supply then some graduates will be forced to move to other areas of activity.
As far as specific occupations are concerned, there will be shortages above all in the health and social sectors. But labour could also become scarcer in the traffic, storage, transport, security and guard professions, in the catering and cleaning sectors, as well as in the media, arts and social science professions. Having said that, if all those employees who would like to increase their working hours could actually do so, then the possible shortages could be reduced.
It may be the case, however, that the scenarios depicted above may not necessarily arise. Mitigating actions by business and politicians, new technical developments, changing employment trajectories and expectations amongst young people can have a decisive influence on future labour-market developments.
Regional and occupation-specific shortages
Employer demand for personnel remains high in Germany. The number of unfilled vacancies; the shortage of qualified applicants for certain positions; and the duration of job occupancy all indicate that the German labour market is one which currently works in employees’ favour. However, it is not the case that an overall labour-shortage in the German economy has been reached. In the fourth quarter of 2013, for example, roughly 3 unemployed people were available for each vacant job.
In this regard, the regional differences are striking. Skills shortages are more likely to occur in the densely populated economic centres. Labour supply in eastern Germany is, from a business perspective, less stretched than in the west, but is nevertheless catching up in terms of skills shortages.
As has been the case for several years, employer demand for labour is mainly concentrated on qualified workers who hold a vocational training qualification. Above all, there is high demand for experts from certain technical professions. Shortages are particularly apparent in the health sector, not only with regard to doctors, but also nurses and other health workers. In addition, there is increasing demand for labour in pre-school care and geriatric care.
Hidden potential amongst highly qualified workers can easily be left untapped where individuals take up jobs which fall short of the level of their qualifications.
According to this definition, in 2012 about 15 per cent of all employees subject to social security contributions were formally overqualified for the job they were doing. In comparison, roughly 63 per cent of employees were employed at a level consistent with their level of qualification.
Here clear regional differences can be observed. In some areas, one in ten workers are employed below his/her qualifications, whilst in other regions this rises to one in four employees. In the western part of Germany there are only a few regions with high proportions of overqualified employees – these include Wolfsburg or the Rhine-Neckar region. The high proportion of over-qualified workers in these areas is partly attributable to better income opportunities.
However, most regions with a very high proportion of overqualified employees are located in the eastern part of Germany. This applies above all to employees aged over 50 who in general completed their training before German reunification. In particular, women living in East Germany are often overqualified for the jobs they do.
Given the predominance of older people amongst overqualified workers, it is to be expected that the differences between eastern and western Germany will diminish with time. Nevertheless, untapped potential still remains where economically active people are carrying out a job below their level of qualifications because of a lack of employment alternatives.
The German apprenticeship system is the subject of frequent international interest because of its success in producing large numbers of a highly skilled workers which are key to the success of Germany’s advanced industries. The ‘dual system’ of (initial) vocational education and training (duales Ausbildungssystem) combines part-time education at a vocational college with on-the-job-training. Training normally lasts for three years. There are more than 350 recognized skilled occupations: the training for each occupation is standardized and follows a combined work and training system – hence the ‘dual system’. It takes place at the firm – at the workplace or in the training workshop – and at a state vocational college one day a week. No specific school-leaving certificate is required to qualify for training for occupations of this type but, in practice, firms generally require at least proof of successful completion of lower secondary education. In the case of trainees with higher certificates, the duration of training may be reduced.
Apprenticeships are an indispensable component of securing skilled labour for the future. Firms which provide training in-house do not only meet their need for qualified staff via external recruitment but can – at least up to a point – ‘build up’ their requisite skills base through their own tailored training programmes, minimising the risk of future skills shortages. Analysis by the IAB shows that firms which are more exposed to shortages in skilled labour engage more proactively with in-house training and apprenticeships than firms which find it easier to get the skilled workers they require.
More than half of companies in Germany fulfil the necessary legal requirements required to deliver apprenticeship training. Of these establishments, at least half offered apprenticeship training in 2013.
The bigger the company, the more likely it is to be authorised to run apprenticeships and to regularly hire apprentices. In 2013 almost all large establishments (of 250 employees or more) provided in-house training in Germany. By contrast, more than 60 per cent of very small establishments (with between 1 and 9 employees) which were authorized to provide training did not do so.
Indeed, companies are having increasing problems filling their apprenticeship places. In the middle of the 2000s around one in ten positions remained unfilled; in 2013 this had risen to one in five. The main driver behind these unfilled positions is a lack of suitable candidates. For instance, 61 per cent of companies with unfilled training positions cited a lack of suitable applicants as the main reason for vacant positions.
Migration, immigration and integration
In Germany, more than 20 per cent of its 81.1 million citizens have a migration background. This proportion is about equal to the Netherlands, England and Wales, and slightly less than in Sweden (22%)(Source: Migration Observatory). This proportion is much higher in urban centres, and amongst young people. Along with immigration from the new EU member states, the number of asylum seekers and refugees from regions of crisis and war has been increasing dramatically since 2014. For example, the net migration balance in Germany was 440,000 in 2013, rising to roughly 550,000 in 2014 (1,465,000 moved to Germany; 914,000 left Germany). In 2015-16, the number of refugees which have come to Germany surpassed the threshold of 1 million people. Due to this development, the German labour force potential is likely to rise rather than to shrink within the next years (see figure).
Two-thirds of people submitting asylum applications are men; one-third is under 18 years of age. People who have been recognized as eligible for asylum or as refugees have free access to the labour market. Since November 2014, asylum seekers and refugees who are not accepted, but who have been granted tolerated stay are allowed to take up gainful employment after a period of three months. Based on previous IAB statistics, 55 per cent of past refugees and asylum seekers in Germany had integrated into the labour market after five years.
Already before the wave of immigration into Germany in 2015-16, there had been a clear rise in net immigration due to the financial and economic crisis in Europe. In large part, this flow of migration came from the crisis-hit southern European states such as Spain, Italy, Portugal, and Greece. This coincided with the recent introduction of free movement for workers from eastern EU-Member States to Germany: from Poland, Romania, and Bulgaria.
In 2013, about 39 per cent of new immigrants held a qualification from an institution of higher education. Thus, the share of university graduates is distinctly higher among new immigrants than among the native German population. However, at the other extreme, the proportion of new immigrants without any post-secondary education at all is, with 30%, significantly higher than the general German population.
Over the past years, immigrants to Germany have integrated fairly well into the labour market. There are, however, large variations. Despite the rise in the employment rate since 2010, the 2013 employment rate of people with a migration background was, at 70 per cent, still 10 percentage points lower than that of people without a migration Background (Source: German Microcensus 2013). The means through which a migrant has gained residency is a determining factor in relation to the degree of labour market integration: immigrants from a third country who receive a residence permit with the right to partake in employment reach an employment rate of 74 per cent; immigrants from the EU reach a similarly high rate. On the other hand, the employment rate of immigrants from third countries who receive a different kind of residence permit – e.g. one without an automatic right to take up employment – is only 55 per Cent.
Germany is currently seen as an attractive destination for foreign workers: the chances of integration into the labour market have improved considerably over recent years – not least due to an improved culture welcoming new arrivals. The removal of barriers to entry and deficits in the provision of information, together with the recognition of professional skills gained abroad, is an important prerequisite for the successful integration of immigrants. Up to now, the success of integration into the labour market has depended strongly on formal professional training and a on good knowledge of the German language. In addition, it has become apparent that the origin, legal status and motives of immigrants, as well as local labour market conditions have an effect on their integration opportunities. This demonstrates clearly the importance for effective labour market policy measures such as job-oriented language courses, and job counselling.
In the long term, immigration has hardly any effect on the macroeconomic wage level and unemployment rate in Germany. On the whole, migrants occupy a more precarious position in the labour market than native-born workers and are therefore more strongly dependent on social security benefits.
Having said that, the long-term labour-market and welfare effects of migration will depend largely on the age profile of new migrants, and on the skills and qualifications they and subsequent generations build up. Indeed, the immigration of qualified and skilled personnel can have a positive effect on the demand for less qualified persons in Germany: on average, employees without a migration background profit from immigration, whilst those migrants already living in Germany may be impacted by lower wages and higher job insecurity because of competition from new immigrants.
The participation of women in the labour market has been increasing steadily in Germany for many years. In 2013, the employment rate for German women aged between 20 and 64 years of age was 72.5 per cent; almost 10 percentage points above the EU average (62.6 per cent) (Source: Eurostat).
This rise is predominantly due to an increase in part-time employment, including marginal employment. By contrast, full-time employment amongst women is on the decline. This is demonstrated by data on the available volume of work: whilst the total number of women in employment rose by 21 per cent between 1991 and 2014, the number of hours worked by women only rose by 4 per cent.
Historically, women living in East Germany were engaged in the labour market to a much greater extent than those in West Germany. However this gap is now narrowing: whilst in 1991 the part-time employment rate amongst east-German women was 26.9 percentage points higher than amongst west-German women, that difference had narrowed to 7.3 percentage points by 2014.
Analyses on peoples’ ideal working hours shows that part-time work is not always a choice. Whilst desired working hours more or less correspond with actual hours worked by women in western Germany, in the east, women often would like to work more hours but can’t access them. Indeed, it is still common in eastern Germany for both women and men to make do with part-time work because they cannot find a full-time job.
For women, the transition to parenthood usually means a break in employment. In western Germany in particular, women often work full-time before the birth of their child, before interrupting their professional life and reducing their working pattern for a relatively long period, or stopping work permanently. Over time, the working patterns of women have diverged according to their level of qualifications. The full-time employment rate amongst female graduates with children is markedly higher than amongst mothers without post-secondary education. Indeed, it also becoming clear that the employment pattern of eastern German mothers with low or mid-level qualifications is converging with that of mothers in the western part of Germany – i.e. working part-time or withdrawing from the labour market altogether.
The typical employment pattern for women in Germany presents long-term disadvantages with regard to income and employment opportunities, because they weaken women’s position on the labour market. Through long breaks in employment, women lose their connection to in-house, technical and organisational developments and their qualifications become less valuable. This reduces their chances of re-entering employment. What is more, family-related breaks in employment and subsequent periods of part-time working mean that women earn less. In cases of divorce or separation, many women then find themselves in the position where they cannot earn a sufficient, independent income and struggle to make provisions for old age.
In 81 per cent of cases, lone parenthood in Germany is due to divorce or separation. The proportion of lone-parent families has increased since the 1990s; in 2013 it reached a level of 20 per cent of families. Gaps in mothers’ CVs as well as an insufficient availability of childcare make it difficult for lone mothers to earn an income that is adequate to support their families. In 2013, 43 per cent of those living in lone-parent households were thus at risk of poverty. This is also reflected in the higher rates of means-tested benefit receipt. In January 2015, this stood at 39 per cent for lone-parent households, compared to 7 per cent for dual-parent households. This is despite the fact that the employment rate for lone mothers is just as high as for mothers with a partner (60 per cent) and that lone mothers are more often employed full-time. For those who are not employed full-time, however, earning a sufficient income is often difficult, and means-tested benefits are therefore required as an additional top-up.
A large variety of factors help to perpetuate typical female employment patterns in Germany. These include traditional notions of childcare and gender roles; family and social policies which support traditional employment patterns amongst couples (such as the system of income tax splitting for married couples which does not give any incentive for work-sharing between spouses); a lack of full-time childcare facilities in the west; and working conditions that are often incompatible with family life. Reforming the policy framework to encourage better compatibility between family life and gainful employment is thus one of Germany’s most important socio-political challenges.
In the past five years, the employment rate of people aged over 50 has risen markedly, although unemployment amongst older workers has remained more or less constant. This is due to past pension reforms which have increased the retirement age and led to increased numbers of older workers remaining in the labour market for longer.
It is particularly highly-qualified older workers who stay in the labour market for a long period of time; unemployment mainly affects low-skilled older workers.
Between 2008 and 2013, the number of employees aged 50-54 grew by about 25 per cent, and grew by 20 per cent for those aged 55-59. For workers aged between 60 and 64, the number of employees grew by a full 80 per cent. Nonetheless, in 2013, the employment rate for 60- to 64-year-olds stood at 31 per cent, still at a much lower level than the employment rate for 15 to 64-year-olds (53 per cent).
The labour market circumstances of German people aged 55-64 are favourable by international standards. In recent years in particular, the employment rate amongst this group has improved markedly; at a level of 63.5 per cent in 2013, the employment rate of older German workers was significantly higher than the EU-average of 50.1 per cent.
It should be noted that older peoples’ participation in the labour market is strongly dependent upon their qualifications. The employment rate of older workers with a university degree, for instance, is almost as high as for younger graduates. But the closer the age group is to retirement age, the lower the employment rate. Furthermore, older people with low qualifications exhibit a particularly low employment rate.
In 2013, there were 950,000 unemployed older people in Germany. Since 2008 the number of older unemployed people has not dropped in line with the general reduction in unemployment. What is striking is that – contrary to the general trend – unemployment amongst 60- to 64-year-olds has clearly increased. This development may well in part be due to the fact that early transition into retirement has been made more difficult in Germany.
While it is true that older people have a lower risk of becoming unemployed than younger people in Germany, it is also the case that their chances of finding a new job once they have become unemployed are worse. Indeed, the risk of long-term unemployment increases with age. Over 45 per cent of older unemployed people have been out of work for more than a year; and more than half of these for longer than two years.