Many job openings, few job seekers: Skills shortage is a growing problem for German SMEs

• Two thirds of all companies hiring are concerned about being able to fill positions
• More and more often, lack of applicants is the main obstacle
• Skills shortages are the flipside of the employment boom
• Structural skills shortage looms when baby boomers retire from 2025

Filling vacancies is becoming a growing problem for small and medium-sized enterprises in Germany, as illustrated by a recent analysis performed by KfW Research on the basis of the KfW SME Panel 2018. Two thirds of all SMEs (66%) want to hire new skilled workers in the next three years. Of these, nearly two thirds (65%) expect recruitment problems. They are concerned about having to compromise on suitability, hiring with a delay, or not being able to fill positions at all. This shows that the SME sector has become much more pessimistic since the previous survey by KfW Research on this topic in 2014. Four years ago, “only” 57% of companies hiring staff were facing recruitment challenges.

The main reason for companies’ concerns is the skills shortage that is growing across all sectors. In 2018, 77% of the affected SMEs stated “lack of applicants in the required occupation” as the cause of their recruitment problems, whereas four years ago it was only 57%. This increase is not just unequivocal but unilateral, as other reasons for recruitment difficulties play a lesser role than in 2014. Today, recruitment fails significantly less often because applicants demand excessively high salaries (dropping from 44% to 38%) and slightly less frequently because they lack additional qualifications (down from 37% to 35%).

It is true that it would still be exaggerated to diagnose a broad skills shortage in all of Germany. But the current analysis of KfW Research shows that skills shortages have intensified in almost all economic sectors since 2014 even though workforce participation of women and older workers has grown significantly during this period. The high need for workers generated by the strong business cycle still exceeds this growth. Most affected is the construction sector, where nine in ten SMEs with recruitment problems are concerned about finding enough applicants (2014: 75%). In addition to sanitary engineering and drywalling, skilled workers are now becoming scarce in underground construction as well.

The shift of recruitment problems towards occupation-specific skills shortages away from other reasons is particularly pronounced in research and development-intensive manufacturing. Employers in these areas are concerned about a shortage of applicants much more often than four years ago (81% vs. 60%). Excessive wage demands and lack of additional qualifications were nearly on the same level in 2014, but these problems have now fallen far behind the shortage of applicants (to 40% and 38%, respectively).

The worsening of the shortage of applicants since 2014 is most drastic in the service sector. In the knowledge-intensive half of the sector where the share of graduates is high, the rate has risen from 55% to 75%, in the “other services” segment the share has even soared by 27 percentage points (from 46% to 73%). Four years ago, high salary demands were still the most common problem here (48%). In health services it is a known fact that nurses and doctors have been in short supply for years, but midwives, physiotherapists and speech therapists are now lacking as well. There is also a shortage of software developers, tax accountants, public utilities workers as well as master hairdressers and driving instructors. The KfW SME Panel also points to skills shortages in cleaning services, the transport sector and educational institutions.

“The causes of recruitment problems have shifted in the past years. Businesses have increasingly fewer job applicants. That is the flipside of a pleasing employment boom and full order books in the SME sector”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “But aside from the current business cycle, a broad skills shortage is looming for the medium term when the baby boomers retire from around 2025. In order to mitigate the impact, workforce and continuing education participation must increase further. A labour market swiped clean of applicants is a good incentive for investing in the expansion of day nurseries, all-day schools and continuing education. I can also imagine that today’s entrants to the labour market will retire after the age of 67 as their life expectancy increases. Either way, in the coming years Germany will definitely need more skilled migrants than before”, Zeuner added.

The analysis by KfW Research on the skills shortage in the SME sector can be retrieved at:

https://www.kfw.de/KfW-Konzern/Service/Download-Center/Konzernthemen-(D)/Research/Fokus-Volkswirtschaft/

Details about the database:

The current analysis on the skills shortage in the SME sector is based on the KfW SME Panel 2018, the only representative survey of the German SME sector (enterprises with turnover of up to EUR 500 million). A total of 9,666 small and medium-sized enterprises took part in the current wave of the survey.