KfW-ifo Skilled Labour Barometer: Skills shortage became much more severe in the spring

• Nearly one in four enterprises complain that their operations are being affected by a lack of skilled workers
• Number of businesses affected has doubled on the previous year as further constraints are imminent
• Small and medium-sized enterprises are hit harder than large enterprises

The lack of skilled workers in Germany continued to grow in the spring of 2021 despite the lockdown and restrictions on many businesses’ operations. In April 2021, 23.7% of all businesses were impacted by skills shortages. Thus, the skills shortage has not quite returned to pre-pandemic levels (29.1% in the first quarter of 2020), but the trend is pointing sharply upwards. The lack of skilled workers has even doubled on the same month in the previous year (11.9%) but the restrictions at the beginning of the coronavirus crisis in April 2020 were also much tighter than now.

The skills shortage has grown in all sectors since the beginning of the year. Currently it is most pronounced in the construction and civil engineering sector (25.5% as compared with 18.2% in January 2021). From January to April, the share of enterprises impacted by a shortage of skilled workers increased from 14.9% to 19.4% in manufacturing, from 11.8% to 15.9% in retail and from 25.2% to 26.4% in the services sector. At sectoral level, the skills shortage in April was highest among law firms, tax consultancies and auditing firms (54.8%), followed by architecture and engineering firms (42.1%) as well as information technology services (37.2%).

A closer look at enterprise size classes reveals that SMEs are more likely to grapple with skills shortages than large enterprises. In April 2021, 24.1% of small and medium-sized enterprises reported that their operations were hampered by a shortage of skilled workers, compared with 22.9% of large enterprises. Skills shortages are significantly more likely to affect manufacturing SMEs (24.5%) than large enterprises (11.9%). In the services sector, by contrast, shortages affect a much higher number of large enterprises (30.5% compared with 25.9%).

Two factors are driving the shortages, one of which is the resurgence in demand for skilled workers in the wake of the economic recovery that began last summer. The second reason is that labour is now in much shorter supply because net migration from abroad has largely dried up as a result of the pandemic.

“Without a response, the skills shortage can grow from a serious challenge into an outright growth obstacle”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “After all, Germany is facing enormous challenges amid the demographically driven decline in labour force potential. A lot of hard work lies ahead, starting with the recovery from the coronavirus crisis, implementing the digital structural transformation and speeding up the transition to a climate-neutral economy through reducing the high government debt and managing the considerable growth of financial burdens for social protection systems to investing in better crisis resilience. If businesses face a considerable shortage of properly skilled workers, it will become hard to do all this successfully. Securing the skilled labour potential must therefore be given the highest priority.” This can be done using three mechanisms: 1. Appropriate training and lifelong continuing education. 2. Promoting skilled migration, for example by simplifying the recognition of skills, and by offering German language courses and training for foreigners where local applicants cannot be recruited. And 3. Higher labour market participation in line with the Council of Economic Experts’ recommendation to modify the standard retirement age.

The KfW-ifo Skilled Labour Barometer is published twice a year in early summer and in autumn. The current edition is available at KfW-ifo-Fachkräftebarometer

Construction and interpretation of the KfW-ifo Skilled Labour Barometer

In order to measure the KfW-ifo Skilled Labour Barometer, KfW Research evaluates the ifo economic surveys which are used to calculate, among other things, the well-known ifo Business Climate Index. The Skilled Labour Barometer reports on the share of enterprises in Germany that report adverse impacts on business operations from a shortage of skilled workers. Each quarter about 9,000 enterprises from trade and industry, construction, wholesale, retail and services (without the banking and insurance sectors or the state) are polled on their business situation, among them some 7,500 SMEs. In addition to providing an overall indicator for the skills shortage in the German economy and indicators for various sectors and regions, the barometer also enables a company size-specific data evaluation separated into SME and large enterprises. Enterprises are generally classed as small to medium-sized if they employ a workforce of not more than 500 and record an annual turnover not exceeding EUR 50 million. For a more accurate analysis, however, these quantitative distinctions have to be drawn more narrowly for retail trade (maximum annual turnover of EUR 12.5 million), the building and the construction industry (up to 200 employees) and services (maximum annual turnover of EUR 25 million). All enterprises that exceed at least one of these thresholds are classed as large-scale enterprises.