“More Job Changes Would Benefit Us”

ZEW President Achim Wambach criticises Olaf Scholz in light of weak growth and explains why the many layoffs in German companies aren’t entirely negative. Wambach conducted the interview in the Handelsblatt with Jan Hildebrand and Julian Olk.

Handelsblatt (HB): Mr. Wambach, many large companies like Bosch, SAP, and ZF are planning to cut jobs in Germany. Are these signs of the feared deindustrialisation?

The structural change is reaching the labour market. So far, we have managed to balance this within companies or regions. Jobs were lost in some places and created in others. It would be beneficial if this continues. But the number of companies planning to cut jobs is increasing.

HB: Are we facing rising unemployment again?

First of all, changing jobs is not a problem. Last year, 50 million people in the US switched jobs. This is good for the economy because people move from shrinking, less productive companies to growing industries. This boosts productivity and thus growth. More job changes would benefit us.

HB: So far, policymakers and companies have aimed to retain employees even during crises.

That makes sense – in a crisis. But Germany is undergoing structural change, and we will see more job changes. This will particularly affect regions like Saarland or Baden-Württemberg, which rely heavily on internal combustion engines and energy-intensive industries.

HB: Do people need to move to places like Brandenburg to work at Tesla?

Not necessarily. Half of the DAX companies are over 100 years old. One of the strengths of the German economy is that companies reinvent themselves from within. In the US, this change happens much more through the creation of new companies.

HB: The German Chancellor says that a green economic miracle lies ahead of us. Is that realistic?

That wouldn’t be my choice of words. It depends on how we approach the transformation. For me, focusing solely on climate targets is too narrow. A transformation that doesn’t secure prosperity will not find international followers.

HB: And how do we achieve a transformation without loss of prosperity?

By creating prosperity: We must ensure that we have the patents and new technologies needed to achieve climate neutrality. Prosperity is created in sectors where we lead in innovation. This is already the case today. These are the sectors that are strong in exports and pay the highest wages.

HB: How should the state support the transformation of the economy?

There are already many funding programmes, but they are often too focused on production. I would place more emphasis on research and development. If, on the one hand, funding for battery research is reduced, and on the other, billions are spent on the production of green steel, then the priorities are not right.

HB: Germany’s growth is very low compared to other industrial nations and the country is falling behind in many respects. Do you think the German government understands the seriousness of the situation?

Robert Habeck and Christian Lindner seem to understand. When I listen to Olaf Scholz’s statements, I sometimes have my doubts.

HB: He is currently facing the harshest criticism from industry associations.

I wouldn’t jump to conclusions. The government has launched a process aiming for economic policy reforms. That is a good start. I regularly speak with representatives from the Federal Chancellery, and they are aware of the difficult situation. So I have every reason to hope that this perspective will prevail.

HB: What measures are urgently needed now?

We used to be in the middle range internationally in terms of corporate tax burdens. Now we are at the top. The US, the UK, and France have lowered their taxes. We must do something about this. We also urgently need planning certainty for energy supply. The uncertainty among businesses is huge. Bureaucracy and the shortage of skilled workers are ongoing issues. The federal government has already initiated some steps in these areas.

HB: It doesn’t seem likely that the coalition will agree on a corporate tax cut. How long can we afford to have the highest tax burden?

This government really should address tax cuts. Taxes are a significant investment factor. It is hard to understand how we ended up at the very top, and we cannot stay there.

HB: But a corporate tax reform could quickly cost the finance minister tens of billions. Where will the money come from?

The French and British managed it.

HB: But they don’t have a debt brake.

That’s true. France accepted higher new debt. But that’s an investment in the country’s attractiveness. In France, this is having an effect. Currently, more investment is happening there than in Germany.

HB: So you would recommend easing the debt brake to finance tax cuts?

I don’t understand why easing the debt brake is often mentioned as the only way to address these problems. We certainly have some leeway with debt, but it’s not that significant. So, the discussion about the debt brake is a distraction: The state cannot bear the necessary investments for the transformation alone; we need private capital. Therefore, we need to become a more attractive location to do business. This brings us back to the tax burden, energy security, and bureaucracy.

HB: And the shortage of skilled workers. How can Germany become more attractive to foreign professionals?

There are many factors such as a welcoming culture or the ability to find housing. One area where policymakers can have a more immediate impact is the burden of taxes and social contributions. Highly skilled immigrants are less interested in a well-developed welfare system. They don’t expect to become unemployed. But the burden of taxes and contributions does matter. Currently, Germany is not very attractive in this regard.

HB: Finance Minister Christian Lindner has proposed giving foreign professionals discounts on income tax.

That might help a bit. But it doesn’t address the issue of our own skilled professionals leaving the country. I see this with my graduates. They go to the UK or the US, first of all because of the good universities. If they can also save on taxes, that is obviously a factor.

HB: What geopolitical issues concern you the most?

The list of risks is long: Further escalation in Ukraine and the Middle East, and rising geopolitical tensions with China would have a major impact on the economy. Then we have to see what happens if Donald Trump becomes president again. If he imposes tariffs on all European products, it would especially hurt the German economy. Additionally, we can no longer necessarily rely on the US for defence and deterrence, at least not without them charging us for it.

HB: If Germany wants to handle this itself in future, we will have to massively invest in our military security. How can we do this without major new financial resources?

First of all, we should look at defence more as an opportunity. Many innovations, especially in the US, have come from military research. It’s similar in Israel. Here, everything is treated with kid gloves, and many programmes are tied to outdated civil clauses. This needs to change. As for funding: Defence is an ongoing task, not a one-off investment. It should be financed through the regular budget.

This interview first appeared in the Handelsblatt.