Data: Germany’s prosperity depends on immigration

Germany can only maintain its prosperity with the help of strong immigration on the labor market.
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Germany already lacks millions of workers. And the gap grows every year. In 2060, the workforce will shrink by a third.

The vast majority of Germans would like to close this gap by training the unemployed. On the other hand, the vast majority reject immigration on the labor market as much as working longer themselves.

It is an illusion, say two of the best labor market researchers in an interview with Business Insider. The data is “brutal but clear”. To maintain prosperity, we need immigration of 400,000 to 500,000 people – every year.

What do inner city cafes, suburban workshops, industrial park factories, hospitals, police, schools, government agencies and even ministries have in common? They are looking for all employees. Wringing hands – or desperate. Two million positions cannot be filled in Germany. Hundreds of thousands of trained specialists are missing.

The lack of workers is already costing us prosperity. Less can be produced. Children are poorly educated, the needy are less cared for. Even prices rise faster because, for example, there are no truck drivers, which makes freight transport more expensive. The pressure can be felt everywhere.

But that is only the beginning. Year after year, more older people are now retiring from the workforce than younger people are entering the labor market. “The number of 15 to 24-year-olds is today around 500,000 fewer than the number of 55 to 64-year-olds,” says Oliver Stettes of the German Economic Institute (IW). Because experience has shown that only around 75 to 80 percent of a cohort actually enter the labor market, the difference quickly grows to two million.

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His colleague Herbert Brücker from the Institute for Labor Market and Business Research (IAB) looks a little further into the future and has an even more dramatic figure: “The potential workforce in Germany will decrease by a third from 2020 to 2060 – from 47.4 million to 31.3 million people.”

Germany therefore lacks 16.4 million potential workers.

What to do about the labor shortage?

How can this gap be closed? I spoke to two of the best labor market experts in Germany about this. Herbert Brücker is professor of economics at the Humboldt University in Berlin and head of the department “Migration, Integration and International Labor Market Research” at the IAB. The IAB is the research facility of the Federal Employment Agency. Oliver Stettes is responsible for the topic “Working World and Collective Bargaining Policy” at the employer-friendly IW.

Let’s start with how the Germans imagine the way out of the lack of skilled workers. The Ifo Institute asked 4000 people: “What is the most suitable measure to reduce the shortage of skilled labour?” and received remarkable answers. The overwhelming majority of 78 percent are in favor of education – especially for the long-term unemployed. Only twelve percent mention immigration on the labor market. Even more unpopular is an increase in working hours, be it through a later retirement start or more weekly working hours.

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The great illusion and the brutal truth

From the point of view of the two economists, the vast majority of Germans suffer from a double illusion: They underestimate the extent of the problem for the country’s prosperity, and they misjudge the opportunity to close the gap in the pool of unemployed. “It doesn’t solve the problem,” Stettes said. “Even if we use all domestic potential, it is not enough to fill the gap.”

Brücker goes even further: “It may be brutal, but it is absolutely clear: it will not work without immigration.”

And again Stettes: “Many have not yet realized what will happen if nothing changes. If we do not allow immigration from the labor market and do not want to work ourselves anymore, we will be missing millions of workers. Then our prosperity decreases, but it is distributed among the same number of people.”

If we want less immigration, the answer is actually clearly collective: We need to work harder to fill the gap. Individually, however, most people would rather work less, fewer hours a week and fewer years until retirement. “For us to be able to afford it, immigration in the labor market becomes even more important,” Stettes said.

Germany needs 500,000 immigrants a year

As a reminder: If the employment rate remains unchanged and there is no migration, Germany will lack around 16.4 million potential workers in 2060. “With a longer working life, more employment among women and the elderly and more full-time work instead of part-time work the potential workforce could be increased by 2.4 million people,” Brücker calculates. Still missing 14 million. His conclusion: To close the gap, “we need a steady net immigration of 400,000 people a year.”

Stop! In fact, there are even more. Because if more and more retire from working life, the number of pensioners will increase. A few hard numbers again: In 2020, the ratio of retirees to the potential workforce was 43 percent. “If we do nothing, it will grow to 80 percent by 2060,” Brücker has calculated. “Even with net immigration of 400,000 people a year, that would still be 59 percent.” Then there wouldn’t even be two workers for every pensioner. “Therefore, we would need more than 500,000 immigrants into the labor market per year to stabilize the pension system to some extent,” judge Brücker.

Unemployed and lack of skilled workers

But what about the unemployed? Here, too, the two researchers agree. “It is important to get the long-term unemployed back into the labor market, also as one of many ways to counteract the lack of skilled workers. All efforts are worthwhile here,” says Stettes. “Of course, we must do everything we can to reduce the number further, not only for economic reasons, but also for social reasons,” says Brücker. “

But: “We cannot mathematically close the gap based on the number of unemployed”.

The data is clear: unemployment in Germany has roughly halved since 2005. “In 2010, there were 3.5 unemployed for every vacant position. Now it is 1.3 – and we are approaching the 1:1 ratio because the number of vacancies is growing.” Most of the unemployed in the statistics are also only out of work for a very short time – let’s say between two jobs.”

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What remains are the long-term unemployed, i.e. those who have been unemployed for more than a year. There are about a million in Germany. Despite all efforts, Stettes and Brücker are sure that the number cannot drop to zero. “There are many reasons why someone is long-term unemployed. Often physical and psychological reasons. Often people have not been employed for a long time. It is not easy to integrate into the labor market,’ says Brücker. “Many of these people are unemployed for specific reasons. They rarely qualify for positions that are now becoming vacant as the baby boomers retire,” says Stettes.

Brücker’s summary: “Even if it were possible to integrate all the long-term unemployed into the labor market: their numbers are far too small to close the growing gap between skilled and other workers. Anyone who believes that we can remedy the shortage of skilled workers from the group of ​​long-term unemployed, unfortunately choose the most unrealistic solution. It is only possible with more migration”

Overtime: At the end of the flagpole in sight

But perhaps with a significant extension of the life’s work? Brücker considers the potential here to be limited. “When it comes to retirement age, we have to recognize that people often don’t want to work anymore – and often they can’t either.” It’s not just about academics. “People who start working at the age of 15 or 16 are often exhausted”.

The potential for female employment also tends to be overestimated. “It is often overlooked that Germany already has the second highest employment rate for women in the EU after Finland.”

Overall, Germany is already making good use of its population’s employment potential, “the end of the road is slowly in sight”.

What Germany must do to ensure prosperity

One thing is important to Brücker: that Germany secures its prosperity through immigration is by no means new. “Since 2010, employment in Germany has increased by around six million people. Of these, around 3.2 million people were German and 2.8 million foreign nationals. Their share was already 47 percent. “Without this immigration, growth in the past decade would have been much slower. We also owe that development to the high income of the state and the social security systems”.

The required number of 400,000 to 500,000 immigrants per year is not illusory either. “Since reunification, we have had an average migration balance of 300,000 people per year in Germany.” This shows that “Germany in itself is not an unattractive country for people from other countries,” Brücker said. In the EU, Germany is the largest immigration country, relative to the population, the migration balance is almost as high as in the USA. “The only problem is labor migration from countries outside the EU. Here we have extremely low numbers. This indicates that the management of labor migration is not working”.

Why? Stettes puts it this way: “We need immigrants in our labor market who also feel at home here. Here, too, we need to rethink things in the companies, in the authorities and in society.” And Brücker says: “The most important thing is a simpler recognition of professional qualifications also in Germany,” says Brücker. There are role models for this: “Examples such as the Western Balkan regulation shows that it works.” The regulation allows people from the countries of the Western Balkans access to the labor market in Germany for any job.The result, according to Brücker: In the affected group of people, employment rates are higher and unemployment is lower than in Germans.

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