Immigration deal reached as shortage of skilled workers predicted

In May 2004, the German government reached a broad political agreement with the major opposition parties on a new immigration law. Business and employers' leaders welcomed the political breakthrough on immigration, in particular because Germany will face a shortage of skilled labour in the future, as highlighted by a new study from the Cologne Institute for Business Research (IW).

On 25 May 2004, a broad political agreement was reached on Germany’s long-debated future immigration policy (DE0105223F and DE0210204F). This deal, which could become law in July, will make it easier for German companies to hire managers and highly qualified technical personnel from outside the EU. According to a government press statement, 'a modern immigration bill will need to provide for the possibility of offering permanent residence status to highly qualified specialists right from the outset. The same applies with regard to foreign university graduates.' According to business leaders and representatives of employers’ federations, such a law will represent an important political breakthrough on immigration and could help to improve the German labour market. They argue that there is not enough skilled labour to fill vacancies, in particular, in the next 10 to 15 years. Further evidence for this scenario has been supplied by a recent study from the Cologne Institute for Business Research (Institut der deutschen Wirtschaft Köln, IW).

IW warns of lack of skilled workers

IW reckons that at present about 20,000 jobs that require highly skilled workers are not filled in Germany because of a shortage of qualified workers. According to the study, the problem is especially evident in healthcare, corporate management and the technical and engineering sectors. IW argues that the shortage of skilled employees often involves key positions upon which other jobs depend. IW research also indicates that the need for qualified workers in Germany will intensify hugely some time after about 2012 or 2015 because that is when the country's 'baby boomers' will retire, and birth rates will stagnate. The new negotiated compromise on immigration, if it becomes law, should, in the short term, help to lessen the impact of this problem.

However the IW researchers believe that the shortage of skilled labour in Germany will take on much greater proportions by 2050. By that time, not only will Germany's population - according to an IW forecast based on an analysis by the Federal Statistical Office (Statistisches Bundesamt, destatis) - fall to about 70 million (12 million less than the current figure), but the number of potential workers will also fall, according to IW estimates, to 30 million from the current 42 million. At the same time, the number of highly qualified employees - those with a university degree or a professional qualification - will sink by 2 million to 8.9 million by 2050. This demographic change implies that fewer workers will, in the future, have to bear more burdens. According to IW, there will be a massive need for skilled labour. Moreover, it states that this dearth of skilled workers will, if nothing is done to address it, also endanger jobs for less skilled workers as those firms that, for example, fail to find engineers to construct new machines will require fewer workers to manufacture, service, transport and market their products.

Economic policy suggestions

The new immigration law compromise cannot 'undo' the demographic changes that have taken place in Germany. However, it will, according to IW, lessen the impact of those changes on the labour market. Despite this compromise, further measures are, in the eyes of IW, necessary. For instance, a strategy to change labour market policies is needed in order to halt and reverse the decline in labour supply. Such a change in policy could, it is argued, exploit opportunities that exist: first to increase employment rates amongst, in particular, women, young people and older workers; and, second, to lengthen weekly working time.

The ability of women to accept a job could be improved if more childcare facilities were available, IW suggests. This would require, for example, greater provision of all-day childcare for pre-school children and additional childcare facilities in the afternoon for school-age children (German schools often finish at lunchtime). If the employment rate for women could be increased by just 5 percentage points by such measures, then there would be an additional supply of about 866,000 workers.

Furthermore, shortening the time spent at school and university could increase the number of those employed by about 400,000, IW argues. Such reforms should not, however, affect the quality of teaching and training that people receive.

Companies will, in the future, have to rely more heavily on older workers (DE0310106F), as the proportion of 45-59 year olds amongst the pool of potential employees will rise from the current figure of approximately 30% to an estimated 37% in 2050. By that time, the average age of German citizens of employable age will be 42.5; at the moment, this figure is about 40. Companies will therefore, according to IW, have to provide further training, flexible working times and a working environment that is especially geared towards the needs of older workers, so that this group of workers have sufficient motivation and ability to enable them to keep up with other colleagues. IW also argues, however, that older workers should themselves keep their qualifications up to date to a greater degree than has until now been the case.

Finally, a lengthening of weekly working time would also be sensible, IW claims. Since 1970, average annual working time, as negotiated in industry-wide collective agreements, has fallen by 14%. If fewer people are to be able to produce an increasing real domestic product, on average they will need to work longer hours, as increases in productivity and greater capital investments will not, in all probability, be able to close the gap between reduced numbers of workers (which, other things being equal, implies lower output) and the need for increases in real gross domestic product.

Reactions

The president of the Confederation of German Industries (Bundesvereinigung der Deutschen Industrie, BDI), Michael Rogowski, conceded that the problem of a lack of skilled labour has eased partially in light of Germany's weak economic growth, but warned that 'this will change when the economy springs back to life again and when, over the long term, demographic developments begin to affect the labour market'. Mr Rogowski added: 'We'll squander away our chances for economic growth if we can't make good the skilled labour shortage.' The employers’ association for the metalworking and electrical industry, Gesamtmetall, also sees such a need. 'Demographic changes are forcing companies to change their personnel planning,' said the head of Gesamtmetall's collective bargaining and social policy department, Karsten Tacke. He went on to state that, from 2010, firms will have to rely very heavily on older workers, as qualified as well as young workers will become increasingly hard to find and expensive.

By contrast, in a recent article entitled 'When demographics becomes demagogy ' published in Einblick, the newsletter of the German Confederation of Trade Unions (Deutscher Gewerkschaftsbund, DGB), it is contended that demographic developments are being used to call for cutbacks in social security programmes (Sozialabbau). The author argues that 'in fact, it is a very weak argument' because, amongst other points, prognoses about populations are uncertain and structural breaks in population developments are possible.

Commentary

Hopes that have, until now, been voiced that the unemployment problem would, to a large extent, solve itself as a result of a declining and ageing population and labour supply are misplaced, not only because of the shortage of skilled workers expected by many experts, but also because of a further problem: the increasing proportion of pensioners amongst the population means that ever fewer workers have to pay social security contributions to cover the benefits paid to ever more recipients. If the German government is unsuccessful in its attempts to reform the largely unfunded 'pay-as-you-go' social security systems, this trend will force non-wage labour costs even higher. Increases in the costs of labour ultimately result in nothing less than a reduction in employment as firms will be reluctant to take on new workers. It is, therefore, necessary to tackle many areas within social policy and collective agreements, if Germany’s anticipated problems are to be overcome. (Lothar Funk, Cologne Institute for Business Research, IW)