KfW-ifo Skilled Labour Barometer: Skills shortage in Germany worsened at the start of the year despite lockdown

• New indicator measured by KfW Research shows lack of skilled labour is hampering business activity
• Shortage affects one in five businesses, strong sectoral and regional differences
• SMEs complain more about shortages than large enterprises

The skills shortage in Germany has worsened significantly since the year 2009. In the first quarter of 2020, the last quarter before the coronavirus crisis, it hampered the operations of 29.1% of businesses in Germany. Owing to the pandemic, problems with skills shortages faded into the background last year, but the dampening effect is likely to be short-lived. While the current lockdown continues to reduce demand for skilled workers in directly affected sectors such as catering and retail, skills shortages are already growing again across the broader economy. In the current first quarter of 2021, one fifth (20.6%) of enterprises in Germany report that their business suffering from a shortage of skilled workers. The share of companies affected by the skills shortage in Germany has thus grown by 5.6% from the third quarter of 2020, as revealed by a representative survey conducted for the newly launched KfW-ifo Skilled Labour Barometer.

The new indicator introduced by KfW Research examines the impact on the overall economy as well as the varying effects on individual sectors. The skills shortage is most pronounced in the services sector, affecting 25.2% of businesses. Land-based transport, architecture and engineering firms, law firms and tax consultancies as well as information technology services are the sectors that report the most severe shortages (between 30% and 44%). In construction and civil engineering, 18.2% of companies see their activities disrupted by a shortage of skilled labour. Manufacturing, by contrast, has significantly fewer problems (14.9%). Fewer than 12% of enterprises in the chemicals industry, the automotive industry and mechanical engineering reported being affected by skills shortages. Pharmaceutical companies reported feeling virtually no effects.

A closer look at the size classes reveals that SMEs are more likely to grapple with skills shortages than large enterprises. In the first quarter of 2021, 20.9% of SMEs reported that their operations were adversely affected by a shortage of skilled labour, compared with 19.9% of large enterprises. Especially in manufacturing, small and medium-sized enterprises are much more often affected by a shortage of skills (19.8%) than large enterprises (7.7%).

Besides differences by company size class and sector, regional disparities also exist. Eastern Germany is more heavily affected by shortages than western Germany. This is mainly due to the high exodus of workers since 1990. Furthermore, it is more difficult to attract skilled workers from other regions of Germany and abroad to settle in structurally weak regions with small towns or rural areas. In the present quarter, 27.7% of companies in eastern Germany (including Berlin) reported to be suffering from skills shortages. The state of Hesse followed with 24.2%, while Bavaria was least affected (16.3%).

“The coronavirus crisis has reduced the need for skilled labour only temporarily, and shortages have grown significantly again with the economic recovery since the summer”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “The skills shortage is particularly notable in the services sector, for example in architecture and engineering firms, law firms and tax consultancies, and in information technology services. Many businesses are desperate for IT experts so that they can move forward with digitalisation. Municipalities have a shortage of administrative staff, which jeopardises the provision of public services in many places. The proportion of companies whose business activity is being hampered by a shortage of skills can be expected to grow fast and return to pre-crisis levels by the end of the year.

The problem will worsen when the baby boomers born between 1955 and 1969 start retiring from the workforce in the coming years. Without an adequate response, that can lead to a prolonged phase of weakness which would make it much more difficult to repair the damage caused by the coronavirus crisis and invest in digitalisation and the transition to a climate-neutral economy, which in turn would result in a loss of competitiveness and a sharp decline in prosperity”, said Köhler-Geib. Both the state and the private sector are called upon to prevent this from happening. In addition to increasing the supply of skilled labour, for example by increasing the labour force participation of women and older workers, or through skilled migration from abroad, upskilling workers will also play a part. “Improving labour productivity is another effective lever. When fewer skilled workers are available, the existing ones must become more productive. To achieve this, we need more innovation and investment in digital technologies that can replace skilled labour. The productivity potential of digitalisation so far has been leveraged only inadequately in Germany. More can and must be done here”, said KfW’s Chief Economist.

The new KfW-ifo Skilled Labour Barometer will be published twice a year in early summer and in autumn. The first edition is available at:
KfW-ifo Skilled Labour Barometer

Construction and interpretation of the KfW-ifo Skilled Labour Barometer
In order to measure the KfW-ifo Skilled Labour Barometer, KfW Research evaluates the ifo economic surveys which are used to calculate, among other things, the well-known ifo Business Climate Index. The Skilled Worker Barometer reports on the share of enterprises in Germany that report suffering adverse impacts on business operations from a shortage of skilled workers. Each quarter about 9,000 enterprises from trade and industry, construction, wholesale, retail and services (without the banking and insurance sectors or the state) are polled on their business situation, among them some 7,500 SMEs. In addition to providing an overall indicator for the skills shortage in the German economy and indicators for various sectors and regions, the barometer also enables a company size-specific data evaluation separated into SME and large enterprises. Enterprises are generally classed as small to medium-sized if they employ a workforce of not more than 500 and record an annual turnover not exceeding EUR 50 million. For a more accurate analysis, however, these quantitative distinctions have to be drawn more narrowly for retail trade (maximum annual turnover of EUR 12.5 million), the building and the construction industry (up to 200 employees) and services (maximum annual turnover of EUR 25 million). All enterprises that exceed at least one of these thresholds are classed as large-scale enterprises.