KfW Research: KfW-ifo Skilled Labour Barometer - Skills shortages differ broadly from sector to sector and regionally

• Skilled labour shortfalls are down in summer of 2024 as a result of the weak economy but remain on a high level
• Shortage of skilled workers hampers business activities of 35% of enterprises in Germany
• Service sector and businesses in eastern Germany are disproportionately affected

The shortage of skilled labour in Germany has continued to ease as a result of the economic downturn. According to the KfW-ifo Skilled Labour Barometer, 35% of businesses reported disruptions to their operations from a shortage of skilled workers in the second quarter of 2024. That was around one percentage point lower than in the last survey in January of this year and 15 percentage points lower than in July 2022, when the skills shortage reached the highest level since the survey was started. Despite the significant drop, the skills shortage remains on a very high level in a historic comparison and thus continues to pose a challenge for businesses.

In the services sector, skilled labour shortages are still well above the average, with 42% of businesses reporting that it impacted on their business activity. In the manufacturing sector, on the other hand, considerably fewer businesses were affected, at 25%, because the economic downturn has reduced the demand for skilled workers primarily among industrial enterprises since mid-2022. Nevertheless, almost three times more manufacturing enterprises than the long-term average continue to be affected. On average across all quarters since 1991, one in ten manufacturing enterprises reported having been impacted by skilled labour shortages. Skills shortages now cause problems for 28% of retailers and wholesalers. In retail the share was 30%, in wholesale and the main construction industry it was 27% each. Overall, small and medium-sized enterprises were affected slightly less in the second quarter (34%) than large enterprises (36%).

A deeper look into the sectors reveals that skills shortages affect them to very different degrees. At present, law firms, tax consultancies and auditing firms are reporting particularly severe shortages, at 71%. The share is over 50% among facility management and gardening services, land-based transport businesses (roads, railways), architecture and engineering firms, travel agencies, tour operators and other reservation service providers.

But skills shortages have eased significantly in a range of manufacturing industries. Manufacturers of leather, leather goods and shoes are relatively little impacted (11%), as are manufacturers of wood products, wickerwork and basketware (15%), electrical equipment (15%) and furniture (16.5%), as well as metal production and processing firms (14%).

Sharp differences are evident not just at sector level but regionally as well. Skilled labour shortages are most pronounced in eastern Germany, where 40% of businesses are affected. For comparison: in Hessen and Rhineland Palatinate the share is 32%. Employers in many regions in eastern Germany face particular challenges in recruiting highly skilled young workers because of the noticeable decline in the employable population and low net migration. Structurally weak rural areas and regions with small towns in particular are at risk of falling behind economically as a result.

“The skilled labour shortage remains a major issue for businesses in Germany even if it has eased again slightly as a result of the current economic weakness”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “But at 35% it is still causing problems for a significant share of enterprises. All economic sectors are affected, and large enterprises slightly more than SMEs. With the expected economic rebound, the shortage of skilled workers will worsen again as well. The extent of this will depend on how successful the responses are, such as incentives for increasing labour market participation by female and older workers, attracting and integrating skilled migrants, demand-oriented upskilling and retraining of workers, and measures aimed at raising labour productivity in individual businesses and across the economy, for example through more digitalisation”.

The current KfW-ifo Skilled Labour Barometer can be downloaded from KfW-ifo Skilled Labour Barometer | KfW