How big is the worker shortage in Germany?

Federal Economy Minister Robert Habeck (Greens) recently described labor shortages as Germany's biggest structural problem. In fact, the numbers are staggering. Last year there were an average of 2.6 million unemployed people for every 760,000 vacant positions, that is, around 3.4 unemployed people per vacant position. The ratio has remained around this level since 2017. In the 2000s, there were typically more than 10 unemployed people per job opening.

Although mathematically it seems that all positions could be filled, that is already a critical proportion. For example, not all vacancies are reported to the Federal Employment Agency. The Labor Market and Occupations Research Institute (IAB) thus calculates a ratio of 2.0 million vacancies and 2.5 million unemployed for the fourth quarter of 2022. This normally only occurs in economic boom phases. , when companies grow in large numbers and need more workers, but this time it also happens in economically difficult times. According to a regular survey by the Ifo Institute, around half of companies say they can no longer adequately fill their vacancies. These are no longer just well-trained specialists and academics, but also jobs that require fewer qualifications.

How will this continue to develop?

While the problem is already big today, it will get worse every year because demographic change means more people are retiring than are entering the workforce at the other end of the age pyramid. This makes it increasingly difficult to fill vacancies. “In 2023 this alone is expected to reduce the labor supply by 400,000 people,” says IAB deputy director Ulrich Walwei.

Why should older workers be able to help?

Economists have identified three main levers. They propose integrating more skilled immigrants into the labor market, increasing the employment rate of women and keeping older workers in the workforce longer. In this article we want to focus on the last aspect. The focus is on the 55+ age cohort.

According to the OECD, their employment rate in 2022 was 73.3 percent, significantly lower than that of people aged 25 to 54, which reached 85.2 percent. It is a natural process that fewer people work as they age. People are becoming ill or even disabled more often or simply do not have the desire or financial need to work until they reach official retirement age. On average in the OECD, the employment rate falls from 79.3 to 62.9 percent. At the lower end are countries where physical labor is much more common.

It cannot be said that in Germany older workers work very little. The rate of 73.3 percent is the seventh highest in the OECD. The only leader is Iceland with 82.6 percent, and we are not far behind New Zealand, which is in second place with 78.4 percent. Otherwise, Japan, Sweden, Norway and Estonia are still ahead of us.

How much more could older people work?

It is unrealistic that the employment rate of people over 55 can increase to the level of the younger generation. As I said, as people age, more and more people drop out of the workforce due to illness or physical strain. In addition, older workers are increasingly working longer. In 2022, the IAB found that the difference between people aged 60 to 64 and those aged 55 to 59 was just 20 percentage points. 20 years ago that was 40 percentage points. Due to the gradual introduction of pensions at age 67, this value will continue to increase anyway.

Therefore, the IAB has simulated what would happen if people aged 60 to 64 simply worked as much as those aged 55 to 59. The institute estimates that in 2035 there will be 2.4 million additional workers. However, they probably wouldn't work full time. Most companies can already retain older employees longer by offering flexible or part-time working time models. If the additional 2.4 million employees worked part-time on average, that would still result in the equivalent of 1.2 million full-time positions.

How qualified are older workers?

When politicians promote ideas to keep older employees or even pensioners in their working lives for longer, they usually talk about the wealth of experience and knowledge of those employed, of which both companies and younger employees they could benefit. In recent years, the term “silver worker” has become a recognition of this.

The reality seems a little less rosy. According to an analysis by the IAB, the proportion of academics, that is, the most qualified workers, is lower in the older generation. About 18 percent of those over 55 have a college degree, while the figure is 30 percent among those aged 30 to 34. In contrast, the rate of older employees with training is 66.5 percent, much higher than in all other age groups. The proportion is lowest among people ages 25 to 29, at 49 percent. However, both older and younger employees do not have any professional qualifications; the rate only varies between 14.3 and 16.1 percent depending on the age group.

However, this is only a snapshot and can only make clear that older workers are not currently the main solution to the lack of academic jobs. However, as in the coming years the age groups with a higher average educational level will rise to the 55+ range, the average educational level in this age group will also improve. Since there is also a shortage of workers with medium and low skills, the lack of education does not prevent older workers from being an effective weapon against labor shortages.

How do companies view older employees?

If we also mention that companies try to keep older employees in the company with flexible and part-time working models, then this only applies to a minority. In the corresponding IAB survey, only 26 percent of companies said they actively wanted to keep older employees in their jobs. The success rate was then very high: 83 percent.

Appreciation for the older unemployed is also low. In a survey, the IAB found that about 11 percent of unemployed people over 55 are released each year from their obligation to look for work by the Federal Employment Agency because the chances of finding work are too low. Another 11 percent give up because they become discouraged after too many failed applications. These figures also include all the unemployed who can no longer work due to illness or family members who need to be cared for, and the small number of those who were already having difficulty finding a placement.

11 percent of discouraged unemployed does not sound like much, but workers over 55 years old represented around 49 percent of all discouraged unemployed in Germany in 2019. For comparison: in Italy this proportion is only 26 percent, in France 30 percent and in Greece 42 percent. In the EU, we are surpassed by Finland (64 percent), Spain (58 percent) and the Netherlands (50 percent).

“Submitting an application when you are over 50 is like playing the lottery,” says the Federal Employment Agency. However, in studies conducted almost ten years ago, the IAB and the agency concluded that the chances of being hired are one-third lower for people aged 55 to 59 than for younger employees, and even two-thirds lower minors for those over 60 years of age. In medium-sized companies, about 14 percent of companies said they do not employ older employees per se.

The problem is usually on both sides: older employees are used to higher salary levels and are generally more selective when choosing a job. There is a myth in companies that older employees are less productive and more likely to be absent due to illness. The former was refuted in 2018 by the Max Planck Institute for Social Law and Social Policy in a study that confirmed even fewer errors and an increase in productivity with age. And in an IAB survey, only 14 percent of companies said their new employees over 50 were “frequently absent.”

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