Despite the economic downturn, employment in Germany is at a record level. But the prospects for the labor market are mixed.
The German economy is currently weakening. So far, the poor mood has only had a minor impact on unemployment. But labor market researchers from Ifo expect that things could change. The current ifo employment barometer fell to 95.5 points in January, after 96.5 points in December.
“The difficult economic situation is now also reflected in personnel planning,” says Klaus Wohlrabe, head of the ifo surveys. “Companies are more reluctant to hire new people. The first layoffs are becoming more likely.” For the ifo employment barometer, 9,000 companies are surveyed every month about their personnel planning for the next three months.
Location from industry to industry different
The mood in the industry is worst. They expect a decline in the number of employees. The willingness to cut staff is also increasing in retail. However, there are mixed results among service providers. Here the willingness to hire decreased. Nevertheless, the bottom line is that staff should still be hired here, according to the Ifo Institute. This applies in particular to IT service providers and the consulting industry. The barometer has fallen slightly in the construction industry. “The recession in construction is increasingly leaving its mark on personnel planning.” The increased interest rates are causing problems for the industry.
However: ifo expert Wohlrabe points out tagesschau.de indicates that the data is only slightly negative. The neutral value is 100. “I don’t expect a sharp increase in unemployment,” he said. At the moment it is more likely that vacancies will be filled more cautiously.
IAB sees signs of relaxation
Current labor market data from the Institute for Labor Market and Vocational Research (IAB) paint a somewhat more positive picture than the ifo figures. The institute’s leading indicator, the IAB labor market barometer, climbed by 0.2 points in January to 100.3 points – and is in positive territory above the neutral value of 100 points.
The leading indicator consists of a view of the future development of employment and unemployment. Employment agencies are asked every month how they view the next three months. The scale ranges from 90 (very poor development) to 110 (very good development).
According to the IAB, the unemployment component remained in negative territory in January, although the outlook has improved slightly – an increase of 0.2 points to 97.4 compared to the previous month.
“A few years ago we would have been happy”
Enzo Weber, head of research for forecasts and macroeconomic analyzes at the IAB, said tagesschau.de: “Even though unemployment rates have increased somewhat, they are still at a very low level. The numbers are so low that we would have been happy about them a few years ago.” Like his colleague Wohlrabe, he doesn’t see a wave of layoffs. Unemployment was 5.7 percent in December.
Although there are expected to be slightly more increases in unemployment, according to the IAB, the employment agencies expect overall employment figures to continue to rise, albeit at a moderate rate. The indicator has improved by 0.2 to 103.1 points, according to the IAB labor market barometer.
Long-term unemployment harder to overcome
On average, despite the economic downturn, more people were employed last year than ever before. On average, almost 46 million people were working, the Federal Statistical Office announced at the beginning of January based on preliminary calculations – more than ever since German unification in 1990. The old record from 2022 was thus reduced by 0.7 percent or 333,000 people exceeded – even though Europe’s largest economy shrank last year, according to leading institutes.
However, the IAB has observed changes in the average duration of unemployment. “Unemployed people are currently finding it much more difficult to get back into work than before Corona,” said Weber tagesschau.de. This will become particularly problematic the longer unemployment lasts.
Should politics intervene?
IAB expert Weber and Wohlrabe from the ifo draw various conclusions from the current data. Wohlrabe agreed tagsesschau.de: “We have the instrument of short-time work, which has gotten us through the crises of the last three years very well. We should first use that if economic development continues to deteriorate.”
On the other hand, Weber sees a need for action: “We have to invest more in the care and qualification of the unemployed.” He also hopes for changes in citizens’ money: “We could provide more financial incentives to work, especially for large households.” Currently, the state’s benefits are being reduced significantly if people expand their work. Weber believes that a somewhat less drastic reduction in these benefits, reinforced by initial support for a certain period of time, could make the transition to work more attractive. “The job opportunities of the unemployed must be increased again, otherwise there is a risk of further consolidation,” explained the labor market researcher.