Germany grappling with dwindling labor supply despite immigration

Only way to ensure decline in labor supply is through massive immigration but further measures important, experts say

Oliver Towfigh Nia   | 24.11.2021
Germany grappling with dwindling labor supply despite immigration


With an annual net immigration of 400,000 people, Germany's labor supply can remain constant in the long term, according to a study published Tuesday by the Institute for Employment Research (IAB). 

The number of economically active people who are potentially available for the labor market is falling in the long term because of ongoing demographic changes, said the report.

Even with an increasing employment rate of women and the elderly and an annual net immigration of 100,000, it will drop from 47.4 million in 2020 to an expected 44.4 million.

The 400,000 figure would allow the labor supply to remain almost constant until 2060, it said.

For demographic reasons, the so-called labor force potential without immigration will decrease by 7.2 million by 2035 and by a total of 16 million workers by 2060.

“Despite optimistic assumptions about the number of women in the labor force and the employment of older people, it will be difficult to slow down the downward trend in the labor force potential,” according to IAB researcher Johann Fuchs. "If the migration flows remain as they were observed over a longer period before the pandemic, the potential labor force will decrease by 6 percent by 2035, but the decrease by 2060 will be almost 20 percent.”

"We consider this low net immigration to be quite realistic compared to previous years," said IAB researcher Doris Soehnlein.

One of the main reasons is the declining potential for migration from the main countries of origin of EU immigration due to the demographic change that is also having an effect.

In addition, with higher immigration, the number of foreign residents living in Germany, and thus their emigration, increases.

"With a better integration of foreign women into the labor market, employment rates of German women that match those of German men, as well as significantly higher employment rates for older people, the additional potential of 3.4 million people could be activated by 2035," according to IAB researcher Brigitte Weber.

Compared to the demographic effects, the domestic employment potential that can still be activated is too low with unchanged working hours.

According to the researchers, more educational measures could dampen the consequences of a falling labor supply. The associated higher productivity of the workforce could, in the longer term, help alleviate the negative consequences.

The Skilled Workers Immigration Act, which took effect in 2020, is also going in the “right direction, but is likely to be inadequate,” employment experts stress.

In coalition negotiations to form the new federal government, the SPD, Greens and FDP have already agreed that they want to make that law “more practicable.”

In addition, a points system is to be introduced to attract foreign skilled workers. ​​​​​​​

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