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KfW Research
Demographics and Education
Focus on Economics
Filling vacancies is a growing challenge for small and medium-sized companies. Innovative companies, in particular, are finding recruitment more difficult. In addition to the general shortage of skilled workers, the reasons for this lie in the higher demands placed on applicants' skills. Innovative companies see their requirements as not being met more often than other companies, particularly with regard to mathematical and statistical skills, social skills and digital skills. These higher requirements are due to the fact that innovative companies use more modern technologies and are more modern in the organisation of their work and company. The requirements of their innovation processes also result in higher demands for the skills mentioned.
In the final quarter of 2023, the share of businesses whose operations were impaired by skills shortages fell below the 40% mark again for the first time in two years as a result of the economic downturn. However, a considerable portion of enterprises in most economic sectors continue to be disrupted by skilled labour shortages. This was particularly the case for the services sector, where 45% of enterprises reported that their business operations were hampered by skills shortages. In manufacturing it was 29%. The shortage of skilled workers is particularly pronounced in Germany’s eastern states.
KfW-ifo Skilled Labour Barometer December 2023(PDF, 375 KB, accessible)
In April 2023, 42.2% of SMEs surveyed under the KfW ifo Skilled Labour Barometer reported that their operations were hampered by a shortage of skilled workers. In the services sector it was 47.4%, in manufacturing 35.1%, a much lower rate. Thus, the skills shortage has eased significantly as a result of the economic downturn. In July last year, skills shortages still hampered the operations of 49.7% of enterprises. At this stage, it can be expected that the business cycle will gradually recover from the price shock and the further course of this year. Driven by economic as well as demographic factors, the skilled labour shortage will therefore probably increase again.
KfW-ifo Skilled Labour Barometer June 2023(PDF, 441 KB, accessible)
Focus on Economics
For more than 70 years, economic growth in Germany could be seen as guaranteed. Those days are over, particularly as a result of weak productivity growth. If Germany sought to maintain per-capita GDP constant up to the year 2035 by increasing labour force participation or immigration alone, it would either have to raise the labour force participation rate far more rapidly than is currently the case or increase net immigration to more than 1.3 million people of working age. Securing present prosperity and future prosperity growth therefore requires a comprehensive mix of measures that also lead to stronger labour productivity growth. This paper draws up scenarios that highlight the requirements and possible responses.
According to the new KfW-ifo Skilled Labour Barometer, skills shortages were affecting operations at 46% of businesses at the start of the fourth quarter. The shortage of skilled labour has further increased since the previous year despite the Ukraine crisis. Skilled workers are missing in all sectors of the economy, especially in services industries, where nearly half of enterprises are hampered by a lack of skilled labour. Job openings are now vacant for an average of five months and recruitment times are becoming much longer. One of the causes for this is the weak growth of labour productivity. In the past five years, labour productivity per person employed has nearly stagnated.
KfW-ifo Skilled Labour Barometer December 2022(PDF, 282 KB, accessible)
After coronavirus slump, number of start-ups recovered in 2021
The number of innovation- or growth-driven young enterprises in Germany has bounced back again. After the coronavirus-induced downturn in 2020, the number of start-ups grew to 61,000 in 2021. It has been found that entrepreneurs wishing to use venture capital are more likely to have characteristics that make it easier for them to access VC. They are more likely to combine an orientation towards innovation and growth, more likely to have an academic background and much more likely to have digital offerings, internet-based business models and international target markets. At the same time, however, female start-up entrepreneurs are less likely to seek VC finance.
In April 2022, 44% of all businesses were impacted by skills shortages. They have therefore grown into a much more common production obstacle than before the pandemic. All sectors are affected. Shortages were disrupting operations at 40% of manufacturing firms, the highest share in the past 30 years by a wide margin.
KfW-ifo Skilled Labour Barometer May 2022(PDF, 250 KB, accessible)
In October 2021, 43% of all businesses were impacted by skilled labour shortages. Because of the coronavirus crisis, that share was only 23.7% in October 2020. Consequently, since the summer the shortage of skilled labour has grown into a much more widespread hurdle to production than before the pandemic. All sectors are affected. Skilled labour shortages impacted operations at 37% of manufacturing firms, the highest share in the past 30 years by a wide margin.
KfW-ifo Skilled Labour Barometer 4th quarter 2021(PDF, 131 KB, non-accessible)
Focus on Economics
Digitalisation is an integral part of SMEs' day-to-day operations. Basic digital skills such as knowing how to use computers, tablets and standard software is of great importance for more than 80% of small and medium-sized enterprises (SMEs). In addition, one quarter of SMEs have a need for advanced skills such as programming and data analysis. A supplementary survey to the KfW SME Panel has shown that one in three SMEs lack urgently needed digital skills. A broad training campaign could prevent the shortage of digital skills from becoming a major barrier to digital structural change.
German SMEs lack digital skills, need more training (PDF, 219 KB, non-accessible)
Focus on Economics
Inflation and interest rates in industrialised countries (ICs) have trended downward for a good 30 years now. Today they are well below their long-term average. Central banks and their low and negative interest rate policies are an important but by no means the sole driver of this development. Rather, demographic processes, the rise of China and advancing globalisation since the 1990s are likely to have been the main factors that have exerted downward pressure on price and interest levels. This means that even without the monetary policy responses to the crises of the past decade interest and inflation rates today are likely lower than as recently as in the 1990s, for example. Our study discusses the impact chains of these processes in greater detail and explains that longer-term upside risks to inflation and interest rates in ICs are likely to result primarily from the reversal of the former.
The skills shortage continues to grow strongly in the second quarter. These are the findings of the current KfW-ifo Skilled Labour Barometer. One quarter of all businesses see their operations hampered by skills shortages, more than twice as many as a year ago. Unless further steps are taken, skills shortages can turn into a serious obstacle to growth in the coming years. Germany therefore needs a strategy to secure the supply of skills for the post-coronavirus era. In order to successfully resolve the shortage, more people must participate in the labour force, workers need to upgrade their skills and the labour productivity growth rate must be strengthened by putting in place frameworks that are more conducive to investment, innovation and digitalisation, as well as by reducing deficits in the digital and business-related infrastructure.
KfW-ifo Skilled Labour Barometer June 2021(PDF, 168 KB, non-accessible)
Focus on Economics
The coronavirus crisis really pulled the handbrake on in-company continuing education in 2020 because many companies do not have the money, time and planning certainty they need. A current supplementary survey under the KfW SME Panel revealed that nearly 40% of small and medium-sized enterprises reduced their continuing education activities last year, half of them down to zero. But the need for continuing education remains during the crisis. Indeed, it grew strongly in the area of digital skills in 2020. Lack of digital skills in the workforce is one of the most formidable barriers to the digital structural transformation, making the crisis-induced decline in continuing education all the more problematic for enterprises’ future transformational capacity and competitiveness.
The newly designed KfW-ifo Skilled Labour Barometer describes – in the aggregate and by economic sectors and regions – to what extent businesses see their business activity hampered by skills shortages. In the first quarter of 2021, skills shortages hampered the operations of 20.6% of businesses in Germany. Despite the lockdown, that was 5.6% more than in the third quarter of 2020. In major service businesses such as architecture and engineering firms, law firms, tax consultancies and information technology services, 30 to 50% of businesses are affected. The skills shortage may turn into a serious obstacle to economic growth in the coming years as further cohorts of baby boomers begin to retire and as a result of weak labour productivity growth. From now on, the KfW-ifo Skilled Labour Barometer will be published in the spring and autumn of each year.
KfW-ifo Skilled Labour Barometer January 2021(PDF, 150 KB, non-accessible)
Economics in Brief
Most Germans are not really into continuing their education. This applies to low-skilled workers and those in the low-wage sector in particular. The trend is growing but 60% of the working population did not engage in further vocational education in 2018. Among workers with a low skill level it was 75%. This is of concern because the coronavirus crisis is threatening many jobs and the digital, demographic and ecological structural transformation is requiring workers to be much more adaptable. Further education can also address growing skills shortages. For a culture of lifelong learning it is therefore important to eliminate the deficits in education and professional development.
Focus on Economics
In the coronavirus year of 2020, Germany’s SMEs were suddenly confronted with existential challenges and putting their plans for the future on the backburner – including transferring management to the next generation. Against that backdrop, KfW Research delivers a positive snapshot of SMEs’ succession activity. First, many entrepreneurs whose withdrawal is imminent are at least adhering to their succession plans even in the crisis. Second, they entered the crisis well-prepared and are staying the course with succession processes they had already initiated. Negotiations for almost half of the approx. 260,000 transfers planned for the next two years have been completed. But the longer the crisis drags on, the higher the risk that successions may fail. The crisis has further exacerbated a fundamental problem: the shortage of successors due to unfavourable demographics and weak entrepreneurial spirit. Removing barriers to entrepreneurial activity is key to a successful generational transition in the SME sector.
Entrepreneurship in Germany in 2019: First growth in 5 years – 2020 overshadowed by coronavirus pandemic
Bolstered by cyclical and labour market growth, entrepreneurial activity in Germany picked up again in 2019 for the first time in years. The number of newly founded businesses rose to 605,000 (+58,000). This was primarily due to a significant rise in part-time business start-ups, while full-time start-ups dropped to a new low. At the same time, the number of opportunity start-ups grew by a disproportionately high 439,000. The number of internet-based and digital start-ups also rose. The outlook for entrepreneurial activity in 2020 was positive but the coronavirus pandemic is changing much of this. Many entrepreneurial plans, which had increased again, will now likely be put off. However, the crisis can be expected to result in more necessity start-ups.
KfW Entrepreneurship Monitor 2020(PDF, 623 KB, non-accessible)
Focus on Economics
Demographic changes are driving the need for accessible housing. Today, Germany has some 3 million households with mobility restrictions and that number will grow to 3.7 million in 2035. However, only 560,000 homes are accessible. In order to reduce the enormous deficit, KfW is providing investment incentives under its ‘Age-Appropriate Conversion’ programme. In the years 2014–2018, promotional loans and investment grants were used for the conversion of 190,000 homes. A recent evaluation has found the promotion to be effective. By far the largest number of measures implemented were those which the research literature has identified as being crucial to accident prevention and independent living – reducing thresholds and steps, as well as building age-appropriate bathrooms. The primary target group, people with mobility limitations, was also reached very well, mainly because the grant support provided is suitable for elderly and low-income households.
Focus on Economics
One third of SMEs cannot meet their digital skill requirements. The problem applies not just to basic digital skills, such as the use of standard software and digital devices, but also to advanced skills such as programming and statistical data analysis. Most SMEs attempt to build digital skills through further training. But short training measures with often limited skill-building effects predominate. More intensive training is hampered primarily by financial barriers. One third of SMEs describe the direct costs as a problem, while one quarter are challenged by employees’ absence from work. Digital learning formats enable more flexible learning, so they have the potential to stimulate further training in small and medium-sized enterprises.
Focus on Economics
There has been a slight drop in the number of upcoming SME successions in Germany. Around 152,000 owners of SMEs want to transfer their business to a successor by the end of 2021. This is illustrated by recent data of the KfW SME Panel. One reason for the recent drop is that business starters have been showing greater interest in taking over existing SMEs. Besides, more enterprises already have a succession plan. Succession within the family continues to lose importance. On the other hand, there is an increasing demand for external buyers. Owners’ price expectations have also increased again. Looking ahead, demographic change will increase the need for successors. A growing number of SME owners who are ready for a transfer will be facing a shrinking number of potential successors. There are not enough emerging entrepreneurs to take over existing businesses.
Please note: Up to the year 2018, our publication was called the KfW Start-up Monitor
Bolstered by a healthy domestic economy, start-up activity in Germany stabilised in 2018 after declining for many years. The number of business starters was 547,000, down slightly on the previous year. The number of business start-ups by women grew, while male start-ups continued trending downward. Start-up activity has been dominated by new business creation. The year 2018 saw more of it than ever before: Eight in ten business starters ventured into self-employment by setting up new businesses. But there has also been a positive trend regarding business starts through the takeover of existing firms for some time now. Business starters have invested noticeably more capital in their business on average in the past decade. Full-time business starters in particular are investing larger amounts. Overall, start-up finance remains a hurdle at which even many start-up plans fall.
KfW Entrepreneurship Monitor 2019(PDF, 572 KB, non-accessible)
Focus on Economics
A new study by KfW Research has fact-checked popular myths about the labour market impacts of digitalisation. Key findings: The negative impacts are often exaggerated in public debate, which instils unnecessary fear. Jobs will be lost but this will likely affect only a fraction of the labour force. Structural change has slowed down in past decades, creating high job security. Incomes from work are unlikely to decline as a result of automation in the near future. Given the current demographic trends, however, the weak labour productivity rate is a cause of concern. Digitalisation and automation offer an opportunity to overcome productivity weakness. That would require increasing the low investment and innovation rates, along with a digital education initiative that also reduces the high share of low-skilled workers.
Digitalisation: Much ado about nothing or is there more to come?(PDF, 373 KB, non-accessible)
Focus on Economics
Three quarters of the population between the age of 18 and 67 has a generally positive attitude towards skilled migrants. These are the findings of a representative survey by KfW Research. Forty-four per cent of the working-age population is of the opinion that Germany should step up its efforts to attract skilled migrants, 30% believe the current level is sufficient and 21% would prefer less. A majority of graduates, high earners and self-employed persons endorse higher skilled migration, unemployed persons are more likely to oppose it. People in rural areas and in eastern Germany are also less likely to see a need for foreign skilled migrants.
Focus on Economics
Fear of failure hampers start-up activity in Germany more than elsewhere. But the good news is that this fear is slowly fading. Fear of failure is mostly driven by fear of financial burdens, should things go wrong. Contrary to widespread assumption, fear of stigmatisation hardly plays a role. Financial risk is part and parcel of entrepreneurial freedom and must not be ignored. Improved teaching of entrepreneurial skills and basic economics, however, can provide potential business founders with the tools to more accurately gauge this risk and take away some of the fear – a knowledge basis that should be created early.
Focus on Economics
According to recent data collected by the KfW SME Panel, around 227,000 owner-managers of small and medium-sized enterprises want to place their business into the hands of a successor by the end of 2020. More than one third of these enterprises have already found a successor. A further quarter are conducting negotiations. The current generation of owner-managers is generally more aware of the need to face the challenges of generational change in a timely manner. Succession outside the family is generally on the rise. Most succession planners have a sound earnings situation, profitability and equity base. Nevertheless, not all will succeed in handing over their business. Time is running out for 36,000 SMEs in particular. They want to complete their succession in the next two years but have not even taken the first step yet. And the main bottleneck remains: The pool of emerging entrepreneurs is too small.
Status report on SME succession: Planning steady at a high level(PDF, 346 KB, non-accessible)
Focus on Economics
Migrants are more active entrepreneurs than the average citizen. For one thing, they have a stronger desire for occupational independence and for another they have lower formal qualifications on average and, hence, more limited labour market opportunities. Migrant start-ups are also different, as they have more co-workers and focus on the personal services sector. They are more strongly affected by certain start-up problems, such as financing. All these patterns are even slightly more pronounced among migrants who live in a non-German-speaking household. Language barriers play a role here and it takes time and support to break them down.
Migrant start-ups – a stronger desire for self-employment(PDF, 234 KB, non-accessible)
Focus on Economics
In 2017 there were around 154,000 ‘young’ social entrepreneurs with 108,000 social enterprises in Germany. That was a share of 9% of all young entrepreneurs. Besides seeking to make a profit, at the very top of their target system is a particular social or ecological concern for which they forgo possible returns. In addition, they also like to break new ground. Just under one third of ‘young’ social entrepreneurs offer new-to-market innovations that were previously unavailable in their target market and one in four develop technological innovations of their own to market readiness. That makes many social entrepreneurs pioneers of sustainable economic development. The share of social entrepreneurs is above average among older business founders. They show that it is possible to realise new plans even at an advanced age and that should be welcomed in the face of demographic change. Social entrepreneurs are more likely to be unsure about having the required business skills, so they should be supported in acquiring such skills.
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