Germany’s lack of skilled labour - Germany needs to tackle the immigration of skilled labour

Questions & Answers

For the first time in many years, the number of unemployed in Germany fell below the three million mark in October 2010. In light of the robust labour market, companies are calling for more immigration, as qualified domestic applicants are now hard to come by. Holger Bonin, head of the research department of Labour Markets, Human Resources, and Social Policy at ZEW, outlines what needs to be done in light of the growing lack of skilled labour.

Dr. Holger Bonin earned his Ph.D. from the University of Freiburg in 2000. Previously affiliated with the Institute for the Study of Labor (IZA) and the German Institute for Economic Research (DIW), Dr. Bonin now heads the department of Labour Markets, Human Resources and Social Policy at ZEW. Dr. Bonin’s research interests include the employment problems of unskilled workers, wage rigidity as well as the economic consequences of demographic change and immigration.

Do we really need immigration?

Definitely. Acute gaps in the labour market can be filled most quickly by hiring immigrants with the desired qualifications. However, this remedy is not very efficacious at present. Skilled personnel from abroad are not exactly queuing up to come to Germany. One reason for sure is that there is still no transparent immigration legislation in place for achieving targeted immigration.

But if Germany opens up for immigration, does this not create a pool of future unemployed as soon as the current economic boom is over?

That is a common misperception. In Germany, we tend to base our presumptions on our less than positive experience with guest workers in the 60s and 70s. These people did not only arrive with very little education. They also suffered from lack of integration incentives and integration opportunities, as they were expected to return to their home countries. Today, we talk about immigration of well-educated people. These will always have above-average employment prospects thanks to their qualifications.

Can you say how many people should immigrate and in which areas?

No one can answer this question precisely, especially as there has been hardly any systematic monitoring of labour market imbalances yet. Close monitoring of labour market frictions is a prerequisite to identify those occupations faced with supply shortages. A point system should give these occupations greater weight. If the system were furthermore to account for the factors age, education level, professional experience, and language skills, the chances would be good of admitting immigrants who easily integrate into the labour market. Nonetheless, also a point system should not set annual immigration quotas too high.

Why should one limit the number of economic immigrants?

Quotas will preserve the market’s ability to regulate itself. If labour demand exceeds supply despite immigration, wages should rise. This should provide the right signals for young individuals choosing a career. And if companies realise that they cannot fill all positions with immigrants, they maintain incentives to provide training and create attractive working conditions.

What can companies do to avoid skill shortages?

At least in the medium-term, employing a greater share of older and female labour is of key importance. In this regard, companies need to make contributions of their own – for instance, by creating working conditions tailored to the needs of older employees or by making a family and career more compatible. In the case of women this involves more than simply providing a company kindergarten. A fundamentally new corporate culture is often required, especially in technical fields, if women are to be given an opportunity to reach the top.

And what about training and education?

Over the short-term little can be achieved through training and education to combat skill shortages. It is simply utopian to think that today’s long-term unemployed who often lack basic cognitive and non cognitive skills would manage to fill the vacant positions after some retraining. Many evaluation studies tell us that if retraining is often ineffective and if anything, positive effects unfold only very slowly. But of course, the skilled workers of tomorrow start their education career in our kindergartens and schools. In Germany, a too large amount of human capital potential is wasted here. We must improve not just in training occupation-related basic skills, but also provide better career guidance and orientation.

Dr. Holger Bonin