The economic slowdown is having an impact on the labor market: According to a study, unemployment is likely to rise to its highest level since 2015 in 2024. Companies are becoming more hesitant to hire new people.
The economic downturn in Germany is increasingly having an impact on the labor market. Unemployment is likely to rise to almost 2.8 million on average this year, the highest level since 2015. This is the result of a study by the employer-related Institute of the German Economy (IW). “Last year the labor market was quite stable, despite the recession,” said IW labor market expert Holger Schäfer. “But this year we are feeling the consequences of the economic crisis more strongly.”
Other economic research institutes recently expected just under 2.7 million unemployed for 2024 in their spring report for the federal government. Last year the economy shrank by 0.3 percent. Although fewer goods and services were produced, the number of employed people rose by 340,000 or 0.7 percent.
Companies hesitate New hires
According to the IW experts, the effects of the economic weakness will now become more apparent on the job market: “The companies’ employment plans do not indicate any growth for the rest of the year,” says the analysis. “Companies’ reluctance to hire new employees worsens job seekers’ chances of finding a suitable position.” As a result, unemployment continues to rise, according to the IW.
Current data from the Ifo Institute shows that the German economy is currently holding back on hiring new employees, thus supporting the IW’s thesis. The employment barometer fell to 96.0 points in April from 96.3 points in March. “A lack of orders is slowing down new hiring for some companies,” said the head of the Ifo surveys, Klaus Wohlrabe.
The export-dependent industry then scaled back its hiring plans at the beginning of the second quarter: “The number of employees should be reduced,” according to the Ifo economists. “This is particularly true for energy-intensive industries.” There is also a trend towards fewer staff in retail. For service providers, however, the barometer increased slightly in April.
“Lower at best “increase in employment”
For the rest of the current year, the IW’s hopes for an upturn in the labor market remain modest: According to the IW, certain leading indicators currently provide little cause for optimism. “The number of newly reported vacancies fell to its lowest level in the last five years in March.” Even if the economy is favorable, at best a slight increase in employment is expected this year.
“Because baby boomers are reaching retirement age, there is a need for replacements and the skills gap is unlikely to close.” A weakening demand for labor and a continued shortage of skilled workers are not mutually exclusive.
The effects of the Net immigration
According to the IW, the number of hours worked increased by 250 million hours or 0.4 percent in 2023. The IW experts attribute this, among other things, to the fact that companies tend to retain skilled workers even if they cannot currently operate at full capacity.
The background here is the demographically expected shortage of labor supply. However, companies could probably only maintain this during short economic dry spells. “As the weak phase continues, it is increasingly likely that the workforce will have to be adjusted because permanent declines in productivity undermine the competitiveness of companies.”
The IW explained that the creation of a significant number of new jobs in 2023 was not enough to reduce unemployment. In fact, there was an increase of 190,000. The reason is also high net immigration. As early as 2022, there was a net migration of 1.5 million people, including one million refugees from Ukraine. In 2023, a further 650,000 people immigrated net in the first eleven months.
Hardly any growth in 2024
It is doubtful whether the economy will pick up sufficiently in the coming months to support the labor market. In its spring projection, the federal government is currently expecting low growth of 0.3 percent for the current year. The forecast had previously been 0.2 percent. Economics Minister Robert Habeck (Greens) expects growth of 1.0 percent for 2025.
The International Monetary Fund (IMF) forecasts growth of 0.2 percent. In January, the IMF forecast 0.5 percent growth for the German economy. This is the weakest growth forecast within the group of seven leading western industrialized countries (G7).
The IMF cites the continued weak consumer sentiment in Germany as one of the main reasons. Economists also emphasize the aging population as a long-term problem. After all, the monetary fund is predicting growth of 1.3 percent for Germany in 2025.
Part-time employment is increasing slightly
Meanwhile, the trend towards more part-time employment continued last year. In 2023, a total of 12.2 million or almost a third of employees (30.9 percent) worked reduced hours, the Federal Statistical Office announced today. A year earlier, the part-time rate was 30 percent. According to the statistics agency, this form of employment has increased slightly for both women and men since 2013.
However, more employed women than men are not employed full-time: last year, exactly one in two female employees worked part-time, while only 13 percent of their male colleagues worked. In 2013, 48 percent of women and ten percent of men worked less than full time. A decade ago, the part-time rate was 28 percent.
Mood on the labor market brightened slightly
According to the Institute for Labor Market and Occupational Research (IAB), the mood on the labor market has recently improved. “Despite the difficult economic situation, the employment agencies expect a stable upward trend in employment,” said IAB expert Enzo Weber. “There is still some way to go before unemployment is reduced, but the outlook is improving.” The IAB labor market barometer rose slightly by 0.2 points to 100.7 points in April, a spokesman said today.
The IAB labor market barometer is based on data from all German employment agencies and their forecasts for the next three months. It is therefore considered an early indicator of developments on the labor market. A value of 100 is considered a neutral outlook, a value below 100 indicates a negative development.