Post-pandemic labour hoarding and strong employee-protection rules are masking worrying changes in Germany’s market for high-paying manufacturing jobs.
After hitting an all-time low of 4.9 per cent in the spring of 2019, the jobless rate in the Eurozone’s largest economy has risen to 6 per cent, according to figures from the Federal Labour Office.
While that is still below the Eurozone average — and less than half the rates seen towards the turn of the 21st century — economists and lawyers think the state of the labour market is worse than the headline number suggests.
They warn that the figures mask a drop off in highly skilled and well-paid manufacturing work, with more trouble to come as industrial giants struggle to cope with high energy prices, lacklustre exports and technological change.
The country’s once buoyant labour market is suffering from “death by a thousand cuts,” said Carsten Brzeski, chief economist at Dutch bank ING, adding that “the penny has not yet dropped” with politicians and the wider public.
While Germany is still adding plenty of low-paid jobs, the country’s vital €564bn auto industry is scrambling to survive the switch to battery cars, which do not require as much complex engineering — or labour — as those powered by petrol.
On Monday, VW chief executive Oliver Blume announced plans to walk back on the company’s promise not to cut jobs until 2029. Plant closures in Germany are also being considered, something that has not happened in the company’s 87-year-old history.
Employment in the auto sector peaked in 2018 and has fallen by 6.5 per cent to 780,000 workers last year. It is likely to fall further as competition from foreign electric vehicle brands challenges Volkswagen, Mercedes-Benz and BMW.
Carmakers’ homegrown network of suppliers have been hit hard. A survey of 50 of them by Horváth, a consultancy, in August revealed that 60 per cent are planning to reduce their German workforce over the next five years.
Continental, Germany’s third-largest supplier with €41.4bn in annual revenue, has decided to exit the car parts business and focus on tyres. It is axing thousands of jobs as it prepares to spin off its sensors and brake systems unit.
In other sectors, large companies such as SAP, Miele and Bayer have announced more than 55,000 job cuts this year so far, according to a Financial Times calculation — though some of these are outside Germany. Other industrial giants such as Thyssenkrupp and BASF are negotiating with unions ahead of a still undisclosed number of lay-offs.
Bernd Fitzenberger, director of the Institute for Employment Research, IAB, described the situation in Germany’s jobs market as “highly concerning”.
“Some blue-chips have started to question businesses [in Germany] that have long been very successful,” said Fitzenberger.
Ulrich Sittard, a partner at law firm Freshfields Bruckhaus Deringer who advises some of the country’s biggest companies on staff reduction, said his redundancy-related work has doubled over the past two years.
“My perception is that the job cutting among German blue-chips has risen to the highest level since the financial crisis.”
With the economy shrinking over three of the past six quarters, some believe companies are holding on to more workers than they need.
Instead of shedding jobs, people are kept on due to fears that the rapid ageing of German society could lead to a widespread shortage of skilled workers.
“Twenty years ago, two years of weak economic growth would have caused a much higher spike in unemployment,” said Holger Schäfer, a labour market expert at German Economic Institute IW, an employer-funded think-tank.
The rise in unemployment can also, at least in part, be explained by the inflow of 1mn refugees from Ukraine, three quarters of them of working age. Though 200,000 have found a job, 210,000 are receiving unemployment benefits and another 300,000 are in training.
As workers are protected by Germany’s tight employment laws, companies are trying to avoid lay-offs, instead attempting to find consensus with works councils by offering lavish voluntary redundancy packages.
Including planning and preparation, the negotiations with workers “can easily take a year”, said Sittard, and employers usually offer between half a month’s and a full month’s salary per year of tenure as severance. “In some sectors like the chemical industry this often rises to 1.5,” he said.
Continental is among companies trying for a different approach. In 2019, it opened an educational retraining centre to “build bridges to new employment” for soon-to-be ex-employees. Auto workers can acquire new skills in fields such as robotics, logistics and electrical work.
“I had a feeling that the very good years in the auto industry [were over and] that there would now be a downturn,” Continental’s director of labour relations, Ariane Reinhart, told the FT. “In the past, you’d pre-retire 57-year-olds to hit your targets. But these people are needed in the labour market — they’re skilled people, who pay taxes and can buy more [goods]”.
In Germany’s chemical industry, which employs 480,000 people, “deindustrialisation is in full swing”, the industry’s trade body VCI warned in October 2023 in a letter to lawmakers in Berlin. The sector, which accounts for 8 per cent of Germany’s total energy usage, is fighting to survive following the dramatic increase in the cost of gas since Russia’s invasion of Ukraine.
BASF, the largest employer, is lowering capacity in Germany and expanding production in Asia. The relocation of production is resulting in permanent damage to economic capacity. “A chemical plant that has been shut down in Germany will not come back,” Schäfer said.
One of the reasons why these concerns have not become more widespread is that Germany’s labour market overall is still adding jobs.
Calculations from the Federal Statistics Office show the total number of people in work has risen to a record high of more than 46mn.
The snag is that those in manufacturing that are vanishing are better paid than the new jobs in child care, nursing homes, healthcare and education.
While these new roles are vital for society, the fear is that Germany is nevertheless creating a two-tier labour market, leading to lacklustre income growth, rising inequality and higher public spending.
“We cannot just live on looking after each other’s kids and teaching ourselves,” said Schäfer.
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