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After facing mass unemployment Germany to deal with labour shortage

Tuesday, 11 January, 2011 - 16:41

The job market has bounced back so well in Germany that the country may soon have to handle a shortage of skilled labour. 

Mass unemployment is becoming a thing of the past in Germany: the labour market bounced to a new high in 2010, to the extent that a shortage of workers is even being felt in some sectors. The average number of unemployed people over 2010 was 3.24 million, 179,000 fewer than in 2009. This figure, which translates into an unemployment rate of 7.7% (8.2% in 2009) is even lower than that of 2008, and far removed from the 5 million jobseekers that Germany counted in 2005, under Gerhard Schröder.

Most strikingly, it seems the trend will stay: most economists predict that the number of jobseekers will drop below 3 million. The Kiel Economics Institute even puts the figure even lower, below 2.5 million, for 2012. Nobody would have expected such a rosy outlook a year ago. On the contrary, economists were all forecasting an increase in unemployment, figuring that the drop registered in the second half of 2009 was merely temporary. But the experts were wrong on one count – growth. None would have believed that the economy would pick up so strongly.

Partial unemployment rather than overtime

The figure for GDP growth in 2010 is expected to reach 3.5%, perhaps even 4%, rather than the paltry 1.5% initially projected. One of the most effective measures taken during the crisis was partial unemployment, known as Kurzarbeit, and subsidised by the state; it allowed companies to make do without part of their workforce, without laying them off, as activity plummeted. As a result, the 2009 crisis, which saw a negative growth of -5%, did not worsen unemployment as much as in other countries. Incidentally, it is interesting to note that the German labour market weathered the crisis thanks to a reduction of working time, whereas in France the government was taken measures to encourage overtime. The crisis hit France harder in terms of jobs, though GDP shrank less (-2.2% in 2009).

When activity picked up, companies had to recruit fast. And with growth expected to remain positive in 2011, at around 2.5%, hiring should likewise increase. In that respect, Germany benefits from a more flexible labour market than France, thanks to the reforms of the Schröder era, and can answer market needs rapidly.

Favourable demographics

Furthermore, Germany does not require as high growth as France to reduce unemployment, given its demographics. In Europe's largest economy, the population is ageing fast and has been decreasing since 2005. In other terms, the number of people available to fill jobs is dropping, not to mention that an ageing population creates new needs and therefore new jobs.

It seems joblessness could stop being a problem in Germany – and this in turn could also lastingly boost household consumption: whereas Germans used to save a lot out of fear of unemployment, now they could be more carefree about spending, thus bolstering growth and job creation.

In fact, the problem Germany could face in the future is more likely to be one of labour shortage. Skilled labour is limited by, again, demographic trends, but also failures of the education system, and in some sectors such as machinery, which are precisely the sectors driving German exports, the shortage is already being felt.

Immigration as a solution

What is at stake is the country's highly valued competitiveness. There may still be 3 million Germans ready to fill jobs still, but they can't be turned overnight into engineers, all the more as long-term jobseekers have a hard time integrating into the workplace, as a recent study by the Bertelsmann Foundation pointed out. Therefore Germany will have to resort to immigration – a seemingly evident solution in a country that will count 10 million people fewer in its active population by 2030. But politicians remain cautious as soon as the question of immigration comes up.

Angela Merkel's CDU and the Liberals may be in favour of a Canadian-style points system and of lowering the level of income required of any non-European immigration applicant (from 66,000 to 44,000 euros). But the Bavarian CSU and the conservatives of the CDU are reluctant to any loosening of borders, and Angela Merkel, facing opposition in her own camp, must be careful not to upset them. So it is unlikely that the necessary and urgent measures will be taken any time soon. Of course, the political class is not ready to swing its focus from fighting unemployment to fighting labour shortage, but it will determine how well Germany fares as it competes with Canada, Australia, China and the USA in the race for skilled engineers.

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