Germany has long been at the forefront as a source of technological innovation and industrial production. It is now leading much of the developed world to a demographic gap that could put an end to Europe’s largest economy, increasing pressure on its pension system and pushing inflation to accelerate in the coming years, according to the Wall Street Journal. investor.bg.
Economists predict that Germany’s labor force could peak in 2023 and then shrink by up to five million by the end of the decade. Although the pandemic is exacerbating the trend, the impending retirement of the baby boomers is a major driver behind the labor market crisis, economists say.
At Janicke GmbH & Co.KG, which builds swimming pools and heating systems, five of its 17 employees are due to retire over the next few years. To replace them, the company, which is about 65 km southwest of Berlin, is already looking for new candidates as they have to go through three years of training. This is proving to be a challenge.
“It’s really hard to find artisans these days,” said Anya Janicke, the company’s human resources manager, who spends her days talking to local schools and maintaining an Instagram page to attract new employees. “And looking ahead, it certainly won’t be easier.”
Germany was one of the first countries in Europe to experience a sharp decline in birth rates after World War II in the 1970s. This means that its fate can show what awaits other developed economies that continue to lag behind in the demographic curve.
The U.S. workforce is expected to grow by about 170 million by 2030 from 161 million last year, according to the Bureau of Labor Statistics. After that, however, most members of the baby boom generation will reach retirement age, limiting the growth of the workforce.
The crisis may overturn some of the main economic policies currently under way, with several successive governments in developed countries focusing on creating jobs to prevent unemployment. In a world of scarce labor, economists say heads of state will need to focus more on supporting growth and fighting inflation, an economic scenario that is more like stagflation since the 1970s.
“The standard of living will no longer be able to rise as usual if countermeasures are not taken,” the German Economic Institute said in November. “Politicians and companies must now avoid prolonged stagnation,” he added.
The new coalition government in Germany under Chancellor Olaf Scholz identifies labor shortages as one of the main obstacles to economic growth. The administration is looking for ways to increase women’s participation in the labor force, encourage people to stay in work longer before retiring and liberalize citizenship rules. The government will offer courses to help migrants integrate and facilitate quick access to school for their children.
German companies are already struggling to fill jobs, and many are offering benefits such as subsidized food or on-site kindergartens, as well as financial incentives to retain older employees for longer. At the beginning of the fourth quarter, the shortage of skilled labor hindered the business activities of 43% of German companies, according to a study by the state-owned development bank KfW and the Ifo Institute of Economics. This is the highest level since German reunification in 1990.
Cultural and social trends exacerbate the problem. Germany already has the lowest number of hours worked per person per year in the Organization for Economic Co-operation and Development. This is partly due to the fact that many Germans retire early and receive generous pension offers.
At the same time, the participation of women in the labor force is 57% in 2019 compared to 67% for men and is lower than in the United States and some other European countries, according to data from the Organization for Economic Cooperation and Development.
Many women reduce their working hours after giving birth due to limited childcare options and tax-sharing rules that allow couples with large income disparities to be taxed at a lower rate as a couple than they would be taxed as individuals, notes Deutsche Bank. Economists have long argued that the rule discourages women from returning to the full-time workforce because they will have to pay higher taxes.
The consequences of the demographic deficit are far-reaching.
They could push potential economic growth below 0.75% by 2025 compared to nearly twice as much as before the pandemic, according to Deutsche Bank. This, in turn, will affect cyclical sustainability – the economy’s ability to absorb economic shocks, and will make it harder to pay off debts, the bank said.
Demographic problems also threaten to make the Germans’ preferred retirement pension scheme unsustainable. The state is already supplementing it with tax revenues, but economists say higher contributions and lower payments will be needed soon. Germany has to pay more than 100 billion euros, equivalent to about a quarter of the federal budget, for the program, and the level could rise to half of the budget by 2040, said Jörg Kramer, chief economist at Commerzbank.
“We are no longer spending enough on investment, so it will be a disaster,” he warned.
Economists also note that inflation, which has historically been a sensitive issue in Germany, may accelerate as declining labor supply leads to higher wages and adds to another major economic problem related to the current situation. industrial production due to the shortage of chips, steel, construction materials and rising energy prices.
Germany needs more than 400,000 net immigrants a year to fill the widening demographic gap, according to the Federal Employment Service. But economists expect half of that number amid limited public and political willingness to accept high immigration after the refugee crisis in 2015. Language, vocational training and bureaucratic hurdles are also among the obstacles.
Only 16% of companies surveyed rely on recruiting qualified staff from abroad, according to a survey of 7,500 executives at the Bertelsmann Stiftung last month.
No sector of the economy has been spared from the looming shortage, with many civil servants having to retire over the next ten years and IT specialists no longer enough.
The German Foundry Association says about a third of its skilled workers will retire in the next few years, but there are currently fewer candidates than positions. The association campaigns on TikTok and Snapchat and uses virtual reality goggles to promote the industry to young people.
An Janicke employee filmed himself with himself as he walked into the building and talked about work.
“Have you thought about becoming a craftsman?” But do you think it’s all dirt, carrying weights and garbage? This is complete obsolescence. We are now working with modern tools and laser technology, “said the employee in the video uploaded by the company on its social media pages. “It’s fun to make money that way,” he added.
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