Germany must respond to graying workforce

This demographic shift is a result of three key factors, according to the researchers: rising life expectancy, declining birth rates and “the cycles of high and low birth rates, which have historically been very pronounced in Germany.” Germany already has the oldest population within the EU according to the Eurostat data – the country’s median age is 45 – and the Berenberg/HWWI researchers estimate that the percentage of over-60s will increase to around 37 percent by 2030.

Germans’ average life expectancy annually rises by 3 months, according to the German Interior Ministry. In the year 2030, life expectancy for women will be almost 86 years, while for men it will be over 81 years, and the old-age dependency ratio will climb from the current 31 percent to 48 percent. As the Berenberg/HWWI study concludes, this demographic change sets up  the entire healthcare market for rapid growth in the coming decades, but it also represents a big challenge for the biggest economy in Europe.

“As a consequence of the demographic change the labour force in Germany will decline significantly. Taking into account opposing effects like e.g. the aging of the society, the increasing labour market participation of men and especially of women, as well as more net immigration a prediction of the Institute for Employment Research (IAB) in Nuremberg forecasts a relative stable labour supply until 2020,” says Alexander Herzog-Stein, a researcher in Macroeconomics and Labour Market from the Hans Böckler Foundation of Düsseldorf.

In terms of labour market, the EU Commission already expects the country’s workforce to shrink by 200,000 a year this decade. To combat this problem, the government set up an official demographics strategy policy in fall 2011.

“In recent years a lot of progress has been made with respect to publicly provided child care, part-time work, etc. but more has to be done. Furthermore, with an aging labour force more has to be done to extend the ability of individual workers to continue working for longer,” warns Herzog-Stein.

The twin effects of a decreasing and aging workforce are already visible: The employment rate for men in their 60s has increased 25 percent and has shot up 51 percent for women of the same age between 2005 and 2011.

The German population already decreased from 82.21 million to 81.7 million between 2000 and 2010, according to World Bank data, while the population in France and Italy increased almost 4 million in each country. For its part, the population in Spain increased from 40.26 million to 46 million in 2010 thanks to the increased immigration, fueled by the Spanish property bubble and a permissive immigration policy.

“In principle, low numbers of birth can be substituted by immigration, although not all problems can be solved through this substitution. The aging of the population is only partly due to low birth rates, but also to increased life expectancy. A woman born in Germany in 1890 could expect to turn 40, whereas a woman born today can expect to reach 83 years old. Most of us welcome this development and do not see it as a problem, but the increased lifespan requires adjustments in our societies and social systems that cannot be substituted by immigration,” explains Dita Vogel, senior researcher at the University of Bremen in the Unit for Intercultural Education.

It’s not all bad news. The German labour market is still expanding; in 2013 it reached a record of 41.8 million of employed people with an unemployment rate of 5 percent in January 2014 according to Eurostat data.

In fact, in 2011, the number of foreigners increased by 177,300 (+2.6 percent) and in 2012 it rose by 282,800 (+4.1 percent). According to estimates of the Federal Statistical Office (Destatis), Germany’s population increased again in 2013 due to a rough increase of foreigners by 419,900, the highest since 1992.

“After a decade of extremely low immigration, immigration to Germany has now increased to a normal level and could be increasing further in the future. Immigration laws have been relaxed in order to attract qualified labour from Third countries the structural features of new immigrant employment is likely to differ from the Spanish case, and hopefully there will be no overshooting due to bubbles of unsustainable growth,” says Vogel from the University of Bremen.

“The challenge for an aging society is to use and improve its potentials and hence its productivity. In the case of Germany, this implies that we have to invest more heavily in the education and hence the human capital of our labour force,” concludes the expert Herzog-Stein from the Hans-Böckler Foundation.