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Wido Geis-Thöne IW-Report No. 11 7. April 2021 Possible Developments in the Supply of Skilled Workers up to the Year 2040

The German labor market is on the verge of a fundamental upheaval. While the number of people in the labor force has risen steadily in recent decades, it is likely to drop significantly as soon as the baby boomers retire.

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Possible Developments in the Supply of Skilled Workers up to the Year 2040
Wido Geis-Thöne IW-Report No. 11 7. April 2021

Possible Developments in the Supply of Skilled Workers up to the Year 2040

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

The German labor market is on the verge of a fundamental upheaval. While the number of people in the labor force has risen steadily in recent decades, it is likely to drop significantly as soon as the baby boomers retire.

However, extent and timing of the decline in the skilled labour supply depend largely on two factors that cannot be predicted exactly. The first is migration between Germany and other countries, which in recent decades has occurred in waves that could hardly be predicted in advance. Around 2010, for example, there were no signs that in addition to a strong net immigration from the new EU member states, there would be the largest influx of refugees in the history of the Federal Republic of Germany in the middle of the decade. The second factor is the labour force participation of people over 60 years. This will in all likelihood increase further with the transition to retirement at 67. However, the interplay with occupational and private pension provision makes the interrelationships between the regulations in the statutory pension insurance scheme and labour force participation in old age very complex. Thus, even without considering the possibility of further changes in pension law, the latter can hardly be estimated precisely to a few percentage points. Moreover, against the background of demographic change, a further increase in the statutory retirement age is conceivable in the next two decades. All other determinants of the development of the skilled labour base can be forecasted relatively accurately or have little influence on the results.

Against this background, projections on the development of the skilled labour supply up to the year 2040 were made under three different assumptions on migration and labour force participation. With very positive developments in both areas, which can probably only be achieved with targeted further developments of the regulatory framework for immigration and later retirement, the number of skilled workers between 20 and 69 years of age active in the labour market remains almost constant. In 2040, it is at 35.2 million only marginally lower than in 2020 at 35.5 million. On the other hand, with low immigration and a small increase in labour force participation, there will be a decline of 4.2 million or 12.0 percent. In a middle scenario, which is particularly plausible according to the way things are today, the decrease amounts to 3.1 million or 8.8 percent. In any case, there will be a strong shift between the academically and professionally qualified labour force. In all scenarios, the number of the former will rise until 2040, whereas the decline in the latter will be much greater than for the skilled labour force as a whole. Therefore, the German economy must not only prepare itself for a decline in the overall supply of skilled workers, but also for a significant change in its composition.

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Possible Developments in the Supply of Skilled Workers up to the Year 2040
Wido Geis-Thöne IW-Report No. 11 7. April 2021

Possible Developments in the Supply of Skilled Workers up to the Year 2040

Download PDF

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

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