KfW-ifo Skilled Labour Barometer: Germany’s skills shortage continues to grow moderately despite pandemic and Ukraine war

• In April, 44% of businesses reported that a lack of skilled personnel was hampering business operations
• Services sector hit hardest, skills shortage in manufacturing highest in 30 years
• New survey by KfW Research: Half of the 18–67-year-olds in Germany favour boosting skilled migration

Despite increasingly uncertain economic prospects due to crises and war, the shortage of skilled labour continues to rise moderately in Germany. In April 2022, 44% of SMEs surveyed under the KfW-ifo Skilled Labour Barometer reported that their operations were hampered by a shortage of skilled workers (October 2021: 43%). The skilled labour shortage has thus reached a new peak. Overall, large enterprises are affected slightly more often than small and medium-sized businesses (45% vs. 43%).

In the spring of 2022, all economic sectors reported being more affected since the last survey of autumn of 2021. The services sector continues to be hardest hit, with half of all enterprises complaining about a shortage of skilled workers (48% in April 2021 vs. 44% in October 2021). The share of affected manufacturing firms reached the highest level in 30 years, at 40% vs. 36%. Skilled labour is in short supply in 36% of construction businesses (33%) and in 34% of retailers and wholesalers (33%).

The new record high skills shortage is mirrored by the highest number of job vacancies reported by the Federal Employment Agency in April. Although the crises are building up, enterprises have reported no shortage of demand. Order books are bursting at the seams. Many businesses are still hiring, even if the international bottlenecks in the supply of commodities and inputs, hefty increases in energy and material prices and the impact of the war in Ukraine are weighing on the economic outlook. In a scenario without an abrupt interruption of energy supplies, however, the recovery of the German economy is expected to continue in the further course of the year, if with greatly reduced momentum. At the same time, demographic change in Germany is already well underway and hitting the labour market with growing intensity. The working-age population will decline at an accelerated pace by around 500,000 persons (approx. 1%) per year between 2025 and 2035.

“The figures from the labour market and the KfW-ifo Skilled Labour Barometer are clearly showing that it would be a mistake to only focus on commodities and inputs from abroad as bottlenecks that hamper the recovery. The skills shortage, too, has a significant impact which will likely be even more severe, particularly in the long run”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Without a response, this will significantly hamper the growth potential of the German economy already by the middle of this decade. As far as addressing the shortage, it is already five minutes past twelve because the challenges have grown significantly. The accelerated energy and mobility transition, the need to catch up in digitalisation, the growing need for skilled workers in the health and care sector as well as in the areas of childcare and education, the housing shortage in metropolitan areas, the urgent need to invest in public infrastructure and the rising number of pensioners and retirees to be cared for are creating new demand for skilled workers. Germany therefore needs to improve and systematically implement its strategy for securing the supply of skilled labour without delay in order to meet these challenges”, said Köhler-Geib. “This includes making even more effective use of the labour force potential in Germany and further opening the labour market to immigration, particularly for non-graduate skilled workers, supported by intensive language training and simplified recognition of foreign qualifications.”

A new representative survey by KfW Research shows that the population sees a very clear need for a proactive migration policy. Of the 18 to 67-year-olds, 83% favour at least maintaining current efforts to attract foreign skilled labour and 48% of these advocate for stepping up efforts (representative survey among 6,000 persons of working age during the second half of 2021). Only 15% would like to see skilled migration reduced. Compared with an identical survey three years ago, respondents have adopted a more open-minded attitude to migration (second half of 2018: 44% supported increasing, 30% maintaining and 21% reducing the skilled migrant intake).

Attitudes towards migration differ significantly by educational level, income and employment status. A very clear majority of 60% of graduates, high-earners and public servants, for example, are in favour of increasing skilled migration, while opponents are in a very small minority of less than 10%. Attitudes of lower-skilled workers and lower-income earners and unemployed persons are very different but do not tip the scale. Of those who are unemployed, for example, 35% favour a higher skilled migration intake, while 25% oppose it. Overall, fear of competition for jobs is likely to play a role here.

The KfW-ifo Skilled Labour Barometer is published twice a year in early summer and in autumn. The current edition and the study by KfW Research on the topic of skilled migration can be retrieved from:
www.kfw.de/About-KfW/Service/Download-Center/Konzernthemen/Research/Indikatoren/KfW-ifo-Fachkr%C3%A4ftebarometer/ (available in German only)

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 SMEs 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.