What Will the German Labour Market Look Like in the Future? Skills Shortage Shows No Sign of Improvement

Although the number of registered unemployed individuals saw a rise of 160,000 persons last year as a result of the deep economic recession, the rate of unemployment did not increase as expected. While these favourable developments are being referred to as the “German Wunder” in other countries, this has little to do with a “Wunder.” What prevented a dramatic surge in the unemployment rate was the extensive use of the part-time work arrangements instrument. Dr. Holger Bonin, head of the Research Department “Labour Markets, Human Resources and Social Policy” at ZEW, analyses this policy instrument for the labour market and provides an outlook for the development of employment in 2010.

After obtaining his degree in economics, Dr. Holger Bonin received his doctoral degree from the University of Freiburg. He worked at the Institute of Labor Economics (IZA) and the German Institute for Economic Research (DIW) and has been head of the ZEW Research Department “Labour Markets, Human Resources and Social Policy” since 2007. As part of his research, Bonin investigates employment issues faced by low-skilled workers, the flexibility of wages, the economic consequences of an ageing population, migration, and the risk propensity of workers. He is a member of the standing field committee “Population Economics” of the economics association Verein für Sozialpolitik.

Many companies are using the instrument of part-time work in this current crisis to stabilize employment in light of the collapsing demand for company products and the slowdown of the production. Is it more sensible to adopt the strategy of part-time work instead of job cuts in order to overcome economic crises?

Bonin: The ones most affected by the current crisis are export companies, where private demand for firm products are relatively stable. Companies with workers who have a comparatively high level of qualification are therefore hit particularly hard. In situations like this, part-time work schemes are an attractive instrument. Firms have an interest in keeping their workers, since making redundancies also means losing firm-specific knowledge. In addition, these firms would face difficulties finding qualified personnel for the next economic upswing.

For 2010, predictions point to low levels of production in the industrial sector. If companies cannot make full use of their production capacities, short-time work could sooner or later become a rather expensive option, and redundancies might be the only alternative. Will we see such a drastic rise in unemployment in 2010?

Bonin: There is no reason to paint a grim picture. There are signs that the economy will pick up considerable pace in 2010, which is why almost all predictions suggest that the number of unemployed persons will not significantly exceed a total of four million individuals. Nevertheless, 2010 will be a difficult year for the labour market. The financial crisis has exposed structural deficits; in these areas, there will be redundancies. As a result, some workers in short-time work arrangements will most likely lose their jobs.

The German Council of Economic Experts predicts that the economy will grow by 1.6 per cent in 2010. Will this be enough to create new jobs?

Bonin: One of the most important consequences of the labour market reforms of the past years is that they have reduced the employment threshold in German. This means that the minimum growth rate that is necessary to create new jobs is now at a lower level than it used to be. This success was made possible by the Hartz Reforms, which have made the labour market far more flexible. Workers are now more willing to make concessions. This will most likely help stabilize the German labour market despite the moderate growth rate anticipated for 2010.

Before the crisis outbreak, German businesses frequently called attention to the skill shortage, especially with regard to engineers and professionals with a background in natural sciences. Does this skills shortage still exist, or has this problem been solved by the unfavorable economic situation?

Bonin: No, the structural problems of the educational system, which created this skill shortage, did not end with the financial crisis, just like the demographic development did not stop. As a result, the demand for skilled workers will most likely grow again once the economy recovers.