Business-related Service Providers: Economic Climate Cooled Off in the First Quarter of 1999

The upswing in the business-related services sector, which had been on-going since mid-1996, has become weaker in the first quarter of 1999. The end of 1998 had already prefigured an economic slowdown. In the first quarter the seasonally adjusted, quarterly turnover growth is 0.9 per cent and thus falls below last years’ as well as the previous quarter’s growth rate: in the first quarter of 1998 the growth rate reached 1.2 per cent, while in the previous quarter it was 1.3 per cent.

The current economic slowdown in the business-related services sector is particularly due to a drop in demand, which in turn is a consequence of the weakening economy in the manufacturing industry. The personnel policy has yet remained unaffected by the economic slowdown in the business-related services sector. In the first quarter of 1999 once again more staff was hired than dismissed by businesses. According to estimates by the employment market expert and president of the Mannheim-based Centre for European Economic Research (ZEW) Prof. Wolfgang Franz, the reasons therefore can mainly be found in the shortages of skilled workers, especially among software providers and business consultants. The business-related service providers apparently tried to implement the adjustment of working times as a starting measure. Another effect of this shortage of workers is the generation of further trainee positions, particularly among the aforementioned lines of business. Altogether, the share of companies offering trainee positions has increased significantly since 1996 in the business-related services sector. These are the findings of a representative survey carried out by the Centre for European Economic Research (ZEW) in collaboration with the credit reference agency “Verband der Vereine Creditreform”, Neuss, in March and April of 1999. The business-related services sector encompasses tax advisors and certified public accountants, business consultants, architects, technical consultants and planners, vehicle renting, machine renting, forwarding companies and logistics firms, software providers, advertising agencies and waste management firms.

Detailed background information

Whereas in mid-1998 business-related service providers had still evaluated their demand situation as being entirely positive, the previous quarter marked its first decline since the third quarter of 1996. This development has now continued. The reason for this decreasing demand in the business-related services sector can be found in the weakening economy of the manufacturing industry. The manufacturing industry is facing a downturn in national and international incoming orders. The further increase in consumer demand is yet unable to compensate for this decrease. Compared to the previous quarters, not only the demand and turnover situation, but also the price, revenue and labour market situation was evaluated, seasonally adjusted, more pessimistically in the first quarter of 1999. A predominantly negative evaluation of the revenue situation even dates as far back as to the end of 1996. Despite the slight downward trend, once again more staff was hired than released by companies in 1999.

No improvement in the short-term

A return to the high growth rates of 1997 and 1998 is not to be expected in the short-term for the business-related services sector since expectations are bleak for the second quarter of 1999. Business-related service providers expect a negative development in turnover, demand, prices and revenue. However, according to estimates of business-related service providers, this further economic slowdown will have no direct impact on the personnel policy. Due to a shortage of skilled workers, particularly among software providers and business consultants, it seems that business-related service providers primarily try to adjust working times and reduce overtime. The economic situation of business-related service providers continues to show a disparity between East and West Germany. West German business-related service providers evaluate their economic situation far more positively than their East German competitors. However, in the first quarter of 1999 the economic assessments of East and West German companies showed less disparity. Whereas West German business-related service providers observe a deterioration of their economic situation, the situation in East Germany has stabilised, which becomes particularly evident from staff reductions having apparently come to a halt. However, a sustainable upswing is not to be expected yet for 1999 in the East German business-related services sector. The East German economy still strongly depends on the building industry; however, this years an upswing in the construction industry is only expected for West Germany.

Situation for software providers and business consultants deteriorates slightly

The downturn in the economic climate in the business-related services sector is in part also due to an economic dip of the booming industries of the previous years, i.e. software providers and business consultants. The economic situation of both industries indeed continues to be assessed positively; however, the strong growth trend of prior years has slowed down a bit. This can be attributed to the temporary boom, which had been caused by switchover to the euro and the turn of the century, slowly petering out. The demand for standard software solutions and their implementation, as well as for the introduction of modern information and communication technologies yet remains unbroken. Therefore, software providers and business consultants will continue to be the largest-growing industries in the business-related services sector. By contrast, waste management firms are increasingly turning into a problem child among business-related service providers. In the first quarter of 1999 the economic climate once again cooled off. This line of business struggles with considerable overcapacities. As a result of the weak economy in the manufacturing industry, vehicle rental companies and forwarders are more pessimistic about their situation than before. On the contrary, the prolonged downturn technical planners were struggling with has apparently come to an end, as they benefit from the building industry starting to pick up again in West Germany. However, the economic situation for architects remains largely at a standstill.

Business-related service providers create more apprenticeships

According to an additional survey by ZEW and Creditreform, the willingness among business-related service providers to create apprenticeships has increased since 1996. In the period between 1996 and 1999 the proportion of business-related service providers offering a state-recognised training has increased by 5.8 per cent. This year, 65.4 per cent of business-related service providers offer apprenticeships. The share of apprentices in relation to the total number of employees has increased since 1996. The reason therefore can be found in the positive economic development as well as in the increasing demand for skilled manpower. A further increase of apprenticeships is expected for the coming three years by the majority of business-related service providers. The rise in demand for apprentices can apparently be met with a sufficient number of adequate solicitors. Merely 14.3 per cent of business-related service providers had difficulties in finding adequate solicitors for vacant apprenticeship places. Especially machine rental companies, as well as software providers and business consultants stated to have had problems with filling vacant apprenticeships places. The lack of skilled employees in the IT field and probably also the creation of new occupational fields in mid-1997 prompted software providers to visibly create more apprenticeships since 1996. Only tax advisors and certified public accountants as well as forwarders train more apprentices than software providers. Vehicle and machine rental companies have the lowest number of apprentices. The continuing downward trend for architects and technical planners also becomes apparent in their reduction of apprenticeships.

Unchanging demand for continuing vocational training

Whereas business-related service providers have increased their training activities in the past few years, their involvement in continuing vocational education remains almost unchanged. 72.6 per cent of business-related service providers see a need for continuing vocational training going beyond their staff’s initial vocational education. Tax advisors and certified public accountants see the greatest need for continuing vocational training. Almost all businesses of both fields consider continuing vocational training courses as important. Software providers as well as waste management firms likewise see a great need for continuing vocational training. Vehicle rental companies and architects on the other hand show comparably little activity in continuing vocational training.

Successful initial vocational education as basis for further training

A profound initial vocational education continues to be a prerequisite for further vocational training in the business-related services sector. More than half of the business-related service providers carry out continuing professional training once their employees finished their initial vocational training and gained professional experience. Especially business consultants, architects, technical planners, machine rental companies as well as waste management firms consider professional experience as a prerequisite for continuing vocational training. One quarter of business-related service providers even offer continuing vocational training courses immediately after the completion of the initial vocational training. The fact that training regulations are sometimes unable to keep up with the latest technical and legal developments, becomes visible in the high proportion of business-related service providers offering continuing training during the initial vocational education. More than one third of the companies already offer continuing training courses at this early stage of the trainee’s company affiliation. In particular tax advisors and certified public accountants provide their young employees with continuing training during their initial vocational education. The purpose behind these continuing training measures is not only to expand the employees’ initial vocational training but also to facilitate their entrance into a new field of activity.  Almost half of the companies claim those two factors to be the main purposes for their continuing training courses. One fifth of the business-related service providers offer continuing vocational training for the mere purpose of expanding the employees’ initial vocational education, while 7.7 per cent mainly offer it to facilitate the entrance into a new field of activity. With regard to their initial and continuing vocational education and training activities, East and West German business-related service providersmerely differ from each other in terms of their willingness to offer apprenticeships. Business-related service providers in the East are more willing to offer apprenticeships than their West German competitors. 

Vocational school graduates make up the majority of business-related service providers

Against the backdrop of a high willingness among business-related service providers to offer apprenticeships, it comes as no surprise that with 39.9 per cent, employees with a finished vocational training constitute the highest share of total staff within this sector. Especially vehicle and machine rental firms as well as tax advisors and certified public accountants employ staff with a finished vocational training. With a share of eleven per cent of total staff, vocational school graduates are particularly popular with advertising agencies as well as tax advisors and certified public accountants.

University graduates from the fields of science and technology constitute a high share of employees among architects and technical planners as well as software providers. The share of this professional group makes up 18.7 per cent of total staff in the business-related services sector. University graduates from the fields of economy, social sciences and humanities constitute a share of 9.9 per cent and are mainly employed by tax advisors and certified public accountants as well as business consultants. Employees without any formal vocational qualifications make up a share of 13.5 per cent and are mainly employed by vehicle rental companies and waste management firms.

Computers replace vocational school graduates and unqualified staff

However, despite the high share of staff with a finished vocational education, one must not forget the fact that it is exactly this professional group which is affected most by the consequences of technical progress. Companies working extensively with computers, for example, employ a relatively small amount of vocational school graduates or unqualified staff. Instead, they tend to employ university graduates, especially from the fields of science and technology, and graduates from trade and technical schools. According to labour market expert Franz, the persistent trend towards an automation of work processes will lead to a further deterioration of the work situation of vocational school graduates and unqualified staff. Already today 73.6 per cent of workplaces are equipped with a computer in the business-related services sector.

Contact

Prof. Dr. Ulrich Kaiser, Phone: +49(0)621/1235-194, E-mail: kaiser@zew.de

Ulrich Kaiser is employed as a senior researcher at the Mannheim-based Centre for European Economic Research (ZEW) in the Research Department "Industrial Economics and International Management". ZEW was founded in 1990 on the basis of an initiative of the Federal State of Baden-Württemberg in co-operation with the Landeskreditbank Baden-Wuerttemberg and the University of Mannheim. In terms of research, the institute has a clear focus on microeconomic and industry analyses, as well as Econometrics. ZEW currently employs 70 researchers in the following Research Departments: International Finance, Labour Markets, Industrial Economics, Environmental Economics, and Corporate Taxation. The Research Department “Industrial Economics and International Management“ comprises 22 researchers, whose focus is on the innovative behavior of German economy, the development of markets and regions, as well as on the service sector. The economic survey of the ZEW and CREDITREFORM has been carried out quarterly since the second quarter of 1994. A selected, representative cross-section of 4000 companies is surveyed quarterly by the ZEW and CREDITREFORM since the second quarter of 1994. The random sample is frequently refreshed by start-up companies.