The number of available workers in Germany will have peaked in 2025. Now the potential is declining. This year the number will shrink by 41,000 to 48.6 million people, the Institute for Labor Market and Occupational Research (IAB) expects. But this is only the beginning of a demographic development that will burden the German economy in the future alongside the structural crisis in its industry.
An analysis by the management consultancy McKinsey provides a more precise picture of this. It is available to the F.A.Z. in advance. According to this, the shrinking labor supply alone will reduce economic output by 0.7 percent annually in this country.
Specifically: If the economy does not gain new strength through other circumstances, the gross domestic product (GDP) would decline from 4,470 billion euros in 2025 to 4,316 billion euros in 2030.
The 60 to 64 age group today consists of 6.6 million people; they will soon reach retirement. The 15 to 19 age group consists of just under four million people on the threshold of professional life. The difference of 2.6 million shows how much the workforce will shrink in the future.
There are unused reserves, including around three million unemployed people. However, unemployed people and vacancies do not easily go together. Ultimately, it acts as a brake on the recovery when workers become scarce. Companies will then find it more difficult to adapt to new business opportunities.
Enzo Weber, head of research at the IAB, warns against false hopes. “Wages are often expected to rise and the unemployment rate to fall when there are fewer workers,” he wrote. A historical analysis of a number of countries since the 19th century shows that things don't work that way: "When the population shrinks, investments and employment fall quickly, while when the population increases they grow much more slowly."
Nevertheless, the loss of economic performance is not an inevitable fate. "Demographic change is a real brake on growth. The associated loss of prosperity is not automatic," says co-author Luca Flora. The biggest opportunity lies in new technologies. Companies could “trigger a significant boost in productivity with artificial intelligence,” emphasizes Solveigh Hieronimus, senior partner at McKinsey. Essentially, there are two approaches: You can increase the work volume of the existing forces. And higher productivity increases the added value per hour worked.
McKinsey examined in more detail what growth potential there is - with a positive outlook for the crisis-plagued industrial location. Also because of its high industrial share, Germany has “the greatest AI-based productivity potential in Europe,” according to the analysis. Across all areas, including public administration, AI and digitalization can achieve additional economic output of 265 billion euros by 2030. That would be a good one percent more growth per year.
A second major productivity potential lies in a political area of action: by reducing bureaucracy, reporting obligations and simultaneously reducing non-wage labor costs, 75 billion euros could be achieved by 2030. And better “allocation dynamics” in the labor market also promise a similar promise: skilled workers should move more quickly and flexibly to growing industries or fields of activity, instead of remaining in old structures with short-time work benefits, for example.
The analysis also sees two major levers for a higher work volume. On the one hand, this is the labor force participation, i.e. the proportion of active workers. Although it is at a fairly high level. But things could be better - for example with a female employment rate like in the Netherlands and a labor force participation rate for older people like in Sweden. Overall, there is a potential of 192 billion euros by 2030. On the other hand, longer working hours help. If everyone worked an hour more per week, this could increase economic output by up to 150 billion euros by 2030.
Ideally, GDP could then rise to 5,087 billion euros by 2030, adjusted for prices, according to the analysis. Despite the shrinking population, that would be growth of 2.6 percent per year. But that doesn't allow for cherry-picking: "Such a leap can only be achieved if both the work effort and productivity are comprehensively increased."
