Germany faces $85bn hit as labour shortages intensify

Bloomberg

As Germany grapples with an energy crisis threatening its future as an industrial leader, an acute shortage of workers is compounding problems for manufacturers already struggling to stay competitive.
The lack of qualified labour — brought on by an aging population and exacerbated by the pandemic — is starving manufacturers from Airbus SE to BMW AG to BASF SE of the staff they need to keep pace with demand. Recent surveys found a record 50% of firms are cutting output due to staffing problems, and it’s costing economy as much as $85 billion per year.
“More and more companies are cutting back on their business because there just aren’t enough workers,” said Stefan Sauer, a labour market expert at the Ifo Institute in Munich. “In the medium and long term, this problem is likely to get even worse.”
A steep rise in the cost of labour may be a boon to workers, but for Europe’s biggest economy, it’s a blow to competitiveness that could hardly come at a worse time.
German manufacturers — especially the most energy-intensive, such as makers of chemicals, glass and ceramics — have already seen margins evaporate due to soaring costs. Some have had to shut down factories or shift production abroad.
The labour shortage is magnifying the pressure. With workers in high demand and inflation jumping to 10.9% last month — the fastest rate since the euro was introduced more than 20 years ago — German public sector staff are seeking a 10.5% pay boost, while metals workers are demanding an 8% raise.
Rapid wage increases could help entrench inflation, creating a headache for policy makers. The trend could push the European Central Bank to clamp down harder, even as the economic outlook is worsening.
Firms are getting creative. Some factories are installing ergonomic equipment to keep workers on physically-demanding assembly lines well into their 60s. Others are offering four-day work weeks and signing perks like skydiving
excursions.
The city of Hamburg is planning its own $390,000 campaign to compete for labour in Denmark and narrow an estimated shortfall of more than 20,000 skilled workers.
The auto industry is redoubling efforts to build its own workforce. BMW recently put 75,000 staff into retraining programs for new production technologies with higher levels of digitisation and automation. Car-parts giant Continental AG has enrolled 10% of its workforce into its internal tech school.
With the baby-boomer generation starting to retire, there aren’t enough younger people to fill the ranks. The German employment agency puts the shortfall at 360,000 to 380,000 per year and sees it rising to as much as 500,000 by the end of the decade.
On top of the demographic trend, Europe is still feeling the impact of the pandemic, when millions of people were furloughed and many didn’t return to their old jobs. Companies now have to “catch up on reallocating staff,” said Ulf Rinne, a researcher at the Institute of Labour Economics in Bonn.
Immigration, an important source of skilled workers, only partially recovered in 2021 after slumping during the pandemic. While an influx of Ukrainian refugees could help address some gaps, the course of the war makes it hard to predict how long they’ll stay.
A key hurdle to integrating foreigners has been the recognition of their qualifications. A rigid system has left experienced engineers from countries like Syria stuck in unskilled works. Rinne said language is another hurdle that puts Germany at a disadvantage to the US and other English-speaking destinations.
In a recent study, Boston Consulting Group said the cost to business in Germany from structural labor shortages is more than $80 billion annually — among the highest of countries surveyed. At current immigration rates, Germany’s workforce will decline by 3 million by 2035 and by as much as 9 million by 2050, according to the study.
The government recently released a new strategy for developing skilled labour, including training and immigration. Chancellor Olaf Scholz’s administration is seeking changes to immigration law to attract more workers from outside the EU. Two of his ministers recently blasted previous approaches as “too sluggish, too bureaucratic, too unwelcoming.”