1. Home
  2. Studies
  3. Are Wages in Germany Responsive to Skilled Labor Shortages?
Alexander Burstedde / Ruth Maria Schüler IW-Trends No. 4 6. January 2021 Are Wages in Germany Responsive to Skilled Labor Shortages?

The demographic transition is confronting Germany with a growing shortage of skilled workers. In a simple, static labor market model, wages in occupations where the demand for labor is high should rise at an above-average rate to restore market equilibrium.

Download
Are Wages in Germany Responsive to Skilled Labor Shortages?
Alexander Burstedde / Ruth Maria Schüler IW-Trends No. 4 6. January 2021

Are Wages in Germany Responsive to Skilled Labor Shortages?

IW-Trends

German Economic Institute (IW) German Economic Institute (IW)

The demographic transition is confronting Germany with a growing shortage of skilled workers. In a simple, static labor market model, wages in occupations where the demand for labor is high should rise at an above-average rate to restore market equilibrium.

In Germany, however, wage levels, career choices and career changes are all influenced by a wide range of factors.Using panel data with a high differentiation by occupation, the present study shows that pay levels in Germany do indeed respond to skilled labour shortages, though they respond more strongly in occupations involving highly complex tasks than in those where the requirements are less stringent. Yet the lack of skilled workers is only one of many factors influencing pay levels. Wage setting is not completely free, being restricted by workers’ productivity and the willingness of customers to pay for goods and services. Furthermore, wages are often not negotiated individually but regulated by collective agreements. Establishing wage levels in Germany is the responsibility of a strong partnership between the two sides of industry. If wages are to be more closely aligned with the availability of skills, more weight needs to be given to such scarcities in the collective bargaining process. Were collective agreements to leave scope for companies to pay premiums, it would be easier for firms in sectors with skilled labour shortages to offer an effective wage above the union rate. It would make both economic and theoretical sense to gear wage increases more closely to the supply of skilled workers than has been the case so far. In occupations where skilled workers are in short supply and – as with many core industrial professions - wage levels are already high, the lack of skilled workers may equally be caused by career choices and the career guidance available in the education system. Here, information on occupations in high demand should be expanded by means of even broader and more practical career counselling.

Content element with id 8291
Download
Are Wages in Germany Responsive to Skilled Labor Shortages?
Alexander Burstedde / Ruth Maria Schüler IW-Trends No. 4 6. January 2021

Alexander Burstedde / Ruth Maria Schüler: Reagieren Löhne in Deutschland auf den Fachkräftemangel?

IW-Trends

German Economic Institute (IW) German Economic Institute (IW)

More on the topic

Read the article
Increasing pressure on the labor market
Lydia Malin / Simon Schumacher IW-Report No. 2 4. January 2024

Pharmaceutical industry: Increasing pressure on the labor market

The shortage of skilled workers poses significant challenges for pharmaceutical companies in Germany and is expected to become increasingly problematic in the context of demographic changes. Concerning Germany's positioning in the international competition ...

IW

Read the article
Wido Geis-Thöne IW-Report No. 25 25. April 2023

Immigration from Latin America: Successes and potential for securing skilled workers

Against the background of the baby boomers leaving the labour market, Germany will be increasingly dependent on skilled workers from abroad in the coming years in order to secure growth and prosperity.

IW

Content element with id 8880 Content element with id 9713