• Larger SMEs and industrial firms in particular use foreign workers
• Very few differences between eastern and western Germany
• Language barriers, bureaucratic and legal hurdles make hiring difficult

Demographic change is becoming a growing problem for the German labour market. The intake of skilled foreign workers can be a building block in solving the emerging labour shortage. A good one in ten small and medium-sized enterprises in Germany – 11.5 per cent – currently employs skilled workers from abroad. Most of them are large SMEs with 50 and more employees. Of these, 61 per cent reported having foreign employees in their workforce. The smaller the business, the less likely foreign workers are to play a role for them.

These are the findings of a representative special survey undertaken as part of the KfW SME Panel. It was conducted in January 2026 among small and medium-sized German enterprises of all economic sectors that generate turnover of up to EUR 500 million. In the survey, the term “foreign skilled worker” was defined as a foreign national who has migrated to Germany for employment, has vocational or academic qualifications and is employed accordingly. Unskilled labourers from abroad, for example, do not fall within this category.

Manufacturing enterprises are most likely to employ foreign skilled workers, with 21 per cent of them reporting this. They are followed by retailers and wholesalers with 14.3 per cent and construction firms with 13.3 per cent.

A share of 12.4 per cent of enterprises responded that they did not employ foreign skilled workers for different reasons even though they generally had a need. At the same time, 45.5 per cent of enterprises responded that they currently had no need for foreign skilled workers.

Due to the phase of economic weakness, the skilled labour shortage is today lower than just a few years ago. As a result, businesses are not feeling the demographically induced labour shortage as much. But the need for skilled workers will increase again as the economy picks up pace again, said Dr Dirk Schumacher, Chief Economist of KfW.

According to the survey, there are very few differences between eastern and western Germany. At 9.6 per cent, the share of businesses that employ foreign skilled workers is marginally lower in the east than in the west, where it is 11.9 per cent. The difference is mainly due to the sectoral structure because the share of larger SMEs in manufacturing and services is higher in the west.

Language barriers were described as a challenge or impediment to the recruitment of foreign workers by 69.1 per cent of businesses. Bureaucratic and legal hurdles were reported by 47.5 per cent. These can include procedures involving residence status, work permits or administrative processes, which are often time-consuming and difficult to predict.

Our survey has shown that while some SMEs would be happy to hire workers from abroad, they are deterred by legal and bureaucratic hurdles. In light of demographic change and the worsening skilled labour shortage, these barriers should be systematically dismantled, said Dr Dirk Schumacher.

The full study can be accessed at Focus on Economics | KfW

KfW supports SMEs with a number of promotional programmes on behalf of the Federal Government. More information is available at We are strengthening the SME sector (German page).