German SMEs need foreign workers

• Almost three fourths of SMEs employ foreign workers
• EU labour market is most important for SMEs, but targeted hiring of non-EU nationals is picking up
• Refugees occupied 250,000 SME positions in the past five years, but rarely as specialists

In German companies, foreign workers are anything but an exception. According to employment statistics published today by the Federal Employment Office, 3.1 million non-Germans are in employment subject to social insurance contributions – not just in large enterprises, but also in SMEs, as confirmed by a representative analysis recently conducted by KfW Research on the basis of the KfW SME Panel. Three in four small and medium-sized enterprises have foreign employees (73%) and most of them are from EU partner countries. Even micro-businesses with up to five employees tend to be staffed internationally (63%). Workers from other countries are particularly common in the retail sector (82%). SMEs rely on migration for the future as well. Around half of all small and medium-sized enterprises specifically plan to hire foreign workers by the year 2021.

The Chief Economist of KfW, Dr Jörg Zeuner, said: "Germany has benefited from skilled migration for decades and will continue to rely on it in the future because our demographic outlook is unfavourable. Uncertainty on the supply of skilled workers is already a major barrier to innovation and growth. An open European labour market is therefore a prerequisite for the future performance capacity of Germany's economy."

In addition to increasing the labour market participation of women and older persons, migration into the labour market is a key antidote to the increasingly scarce labour supply in Germany. As KfW Research's analysis shows, SMEs are increasingly adapting their employment plans to this reality. In the past five years, 38% of SME employers have deliberately recruited foreign workers, and 52% are already planning to do this for the next five years. "Retreating into the nation-state would therefore hit small and medium-sized enterprises most of all, as they have nowhere to move their production", said Zeuner.

As Germany's EU partners are facing similar demographic challenges, skilled migrants from non-EU countries will become more important in the future. In the past five years, 11% of SMEs have focused their recruitment on workers from third countries, and that share will more than double to 24% by the year 2021.

Integrating refugees into the German labour market is a long-term process. In the past five years, some 144,000 SMEs have hired around 250,000 refugees. These employment relationships have consisted primarily of apprenticeships, internships or temporary positions (around 200,000 over the five-year period). Higher-skilled employment is less common, as about one per cent of SME employers have hired refugees as skilled workers in the past five years. Some 49,000 employment contracts of this type have been concluded in total.

The Chief Economist of KfW Group, Dr Jörg Zeuner, commented: "It is not surprising that refugees enter the German labour market through the multi-stage process of training and qualification. After all, they mainly seek protection in Germany and have hardly prepared for the competition on the German labour market. A key challenge of the coming years for Germany will be to integrate refugees into the labour and education market. The first thing they need, above all else, is knowledge of German. The right approach is to invest more in this field in the coming years."

The study "Focus on Economics – Foreign workers in German SMEs: a strong plea for free labour markets" is available for download from the link (English version forthcoming)

www.kfw.de/fokus