The German Institute for Economic Research in Berlin (DIW) is calling for more immigration to boost growth. The shortage of skilled workers is increasingly becoming a limiting factor for production potential, according to the DIW economists Angelina Hackmann, Teresa Schildmann, and Konstantin Kholodilin in a joint study.
The baby boomer generation is increasingly reaching the retirement age and is expected to leave the workforce. The demographic aging alone will lead to a decline of approximately 300,000 people per year in the domestic labor force between 2025 and 2029, the DIW economists warn.
The growth rate of Germany’s production potential, which averaged 1.2 percent between 2015 and 2023, will shrink to just 0.4 percent. The ability to create additional wealth and distribute it fairly will increasingly be restricted.
While women and those at the end of their careers could be motivated by the expansion of affordable childcare options, a reform of the married couples’ splitting and the creation of incentives for the elderly to engage, this alone would not be enough, the economists say.
The relevance of migration for the German labor market and the overall economy is already becoming apparent. Since the beginning of 2023, the buildup of social security-insured employees has been driven solely by foreign nationals.
While the number of social security-insured employees of foreign nationals has increased by around 277,000 people (+5.2 percent) in the third quarter of 2024 compared to the previous year, the number of employees with German citizenship has decreased by approximately 125,000 people (-0.5 percent) in the same period, the DIW researchers calculate.
A net migration of zero would result in the number of employees decreasing to less than 62 million by 2029, according to DIW estimates.
To bring the potential rate back to its long-term average of 1.1 percent by 2029, the number of employees would need to increase by a total of 1.5 million. With a migrant share in the workforce of 75 percent, two million new immigrants would be needed, the DIW economists calculate.
The 2019 Skilled Worker Immigration Act, which was significantly expanded again in 2023, could support a stronger influx of immigrants. However, it is only known to a third of foreign skilled workers. In addition to bureaucratic hurdles like visa issuance and problems with recognizing qualifications, job seekers from abroad and the learning of the German language are missing support, the authors write.
Even on the company side, IAB’s business panel shows that many companies still face difficulties in correctly assessing qualifications and bureaucratic and legal hurdles in actively recruiting skilled workers from abroad.
Even employed migrants who already work in Germany complain of shortcomings: In particular, 56 percent of respondents report discrimination, particularly in the search for a home and in daily life. Moreover, the lack of support in the job search of the partner is mentioned as a hurdle. On average, 838,000 people from non-asylum countries left Germany between 2015 and 2023, the DIW researchers explain.
Asylum seekers, on the other hand, are exposed to barriers like a temporary ban on employment and uncertainty about their future residence status during the asylum procedure. Shortening the duration of the asylum procedure, which averaged 8.7 months in 2024, would be an important measure to quickly reduce the uncertainties for affected individuals and potential employers and enable a swift return to work, the DIW economists write. Language courses and further education are also necessary.