Education and Competition Key to Solving Labour Shortage
Questions & AnswersInterview with ZEW Economist Friedhelm Pfeiffer
Demographic changes are increasingly being felt in Germany as many companies struggle to find qualified applicants. Nevertheless, many unutilized options exist for easing bottlenecks in the German labour market.
In this interview, PD Dr. Friedhelm Pfeiffer, acting head of ZEW’s “Labour Markets and Human Resources” Research Department, talks about the challenges posed by the labour shortage and the strategies that can help solve it.
Everyone is talking about the shortage of skilled workers. Is the German economy in the midst of a crisis?
Many companies, technically innovative ones in particular, report difficulties in finding skilled workers. Over the past few decades, whenever the economy has been strong skilled workers have been increasingly difficult to find in many sectors. However, economic growth has slowed since August 2018. The coronavirus crisis will create severe problems in many sectors, such as the automotive industry and other service sectors, where firms already implemented massive working-hour reductions. Under normal circumstances, from an economic perspective skilled workers are always in short supply. Income levels are an important indicator of this scarcity. The higher the income, the fewer the number of skilled workers. Over the past ten years, the wages of highly qualified specialists, such as those with a university degree or a master tradesman certificate, have increased, on average, somewhat more than the wages of those with basic vocational training. The development of income levels points to a certain tension on the labour markets for highly qualified specialists. But wages are not just an indicator of scarcity. They also convey ideas of fairness and promote productivity. The average incomes earned by those in demand and those not in demand should not diverge arbitrarily within a company. This is just one reason why income levels tend to develop sluggishly instead of responding quickly to changes in worker availability. In the medium term, however, wages do indeed reflect labour scarcity and, by extension, career opportunities.
What are the key skills that workers need?
Digitalisation demands new analytical skillsets, such as the ability to program robots or design artificial intelligence. This represents an opportunity for many older workers, because physical abilities may decline faster than mental cognition. Moreover, specialist skills, social intelligence, drive, assertiveness, creativity and reliability remain scarce and in demand. These skills must be acquired, developed and maintained and will continue to be rewarded on the labour markets of the future.
What does the education system have to do?
The education system has changed in a variety of ways. Educational institutions want to prepare learners for successful employment. In my view, the principle that students are free to choose their course of study and that universities are free to offer appealing degree programmes has largely proven itself. For young students, particular emphasis should be placed on the acquisition of skills that have the potential to generate income over the course of their entire career, even if they are not always the skills that companies are currently demanding. Universities would be well advised, therefore, to focus on medium- and long-term developments when designing their courses. Things are different with vocational training. Here companies can provide the education for which they have an immediate need. But vocational schools, too, must emphasise the acquisition of skills that can keep workers employable throughout their professional lives.
What role will immigration play in solving the labour shortage problem?
For years now, Germany had been a sought-after destination for workers from abroad primarily seeking high wages and salaries. Experience has shown that this trend will continue as long as there are sufficient numbers of job openings, which is now no longer the case as a result of the coronavirus crisis. In the last decade, however, immigration has helped to alleviate the shortage of skilled workers in areas such as construction, hospitality and healthcare, and reduced overall wage pressure.
What can companies do to help?
Companies can offer attractive working conditions. They can make it easier for employees to combine family and work by offering fewer and more flexible working hours and taking into account people’s sense of fairness when determining income. They can create a welcoming environment that fosters social interaction and self-determination among older workers. They can help design new professions as part of the dual system of vocational training. It is also important that companies provide reliable information on the skillsets they need so that job seekers and young people in education can find out more about what companies are looking for and what career opportunities may await them.
