As part of the CEF theme days on 29 April, the Catholic Workers' Movement in Bamberg hosted an online debate on changes in the world of work. In the introductory lecture, Johanna Zenk, research associate at the Institute for Employment Research (IAB) in Nuremberg, presented projections and assessments of labour market developments.
The German labour market is in the midst of a number of transformations, three of which I have already highlighted in the title: demographics, digitalisation and decarbonisation. My presentation is based on the results of the project Qualifications and Careers in the Future. In this project, we are looking at future developments on the labour market. The project is being carried out together with the Federal Institute for Vocational Education and Training in Bonn and the Society for Economic Structures Research in Osnabrück. The aim is to map medium and long-term changes in the world of work and the education system. These can be used to identify at an early stage where there may be matching problems between labour demand and labour supply.
Our projections currently extend to the year 2040 and it is important for me to emphasise that we prefer to speak of projections rather than forecasts. Especially with a long horizon up to 2040, it is of course not possible to make precise predictions. However, we can show how the labour market will develop on the basis of trends and current conditions if there are no fundamental changes. Our projection is therefore based on the observation of past trends and behavioural patterns as well as on influences that are currently considered to be trend-setting. These are, for example, population development, educational decisions, developments in the labour market, such as the employment rate, and economic aspects, such as changes in labour productivity.
Our projections are therefore always based on the premise that trends and behavioural patterns that we have observed in the past or currently see will continue in the future and that the assumptions made will also materialise. We update our projections every two years; we are currently working on the basis of data from 2022.
With regard to the future development of the labour market, we are primarily concerned with the three megatrends of demographic change, digitalisation and decarbonisation, or ecological transformation. I will first say a few words about digitalisation and decarbonisation and then explain the effects of demographic change in more detail.
Digitisation
We can already see the effects of digitalisation in past data, for example in the structure of investments. Investment in intellectual property has increased more strongly than investment in equipment in recent years. Investment in intellectual property includes expenditure on research and development, but also internally developed or externally sourced software. However, there is also a change in the occupational structure: Away from routine activities towards more cognitive, problem-solving activities. Digitalisation is also having an impact on households, for example in consumption, where people are increasingly turning to digital services and the devices they require. This dynamic has gained momentum with coronavirus, particularly with regard to the increased use of working from home and video conferencing. Also
Online retail has increased significantly in recent years.
Decarbonisation
We expect increasing momentum in the area of decarbonisation, which we have not yet seen in past data. In order to take this into account in our projections, we have made additional assumptions here. We have based these on political objectives such as the Easter package, which aims to accelerate the expansion of wind power and photovoltaics or increase the CO2 tax, for example. We have also made assumptions about the increased use of electric vehicles and heat pumps.
Demography
Demographic trends are particularly important for labour market research because they influence the supply of labour. This is of course the main factor, but it also influences the consumption and investment decisions of both private households and companies.
The chart below shows the population development in Germany as a whole between 2012 and 2040, with our projection starting in 2022. The dark blue line at the top shows the development of the total population, and we have a small jump upwards here due to the refugee movement from Ukraine in 2022. If we compare the trend up to 2040 with 2021, we still see a population decline of 0.8 per cent despite the higher influx in the meantime. This population decline is particularly pronounced in the new federal states. It will also come as little surprise to most people that the number of people of working age will fall much more sharply: by 5 million people in absolute terms.
Effects on the labour supply
However, the actual labour supply must be distinguished from this: Not all people of working age are active on the labour market. In the younger age groups, there are many people who are at school or university and in the older age groups, some are already retired or not in employment. The turquoise line shows the development of the labour force. This means all people who offer their work on the labour market, including both the employed and the unemployed. The number of people in the labour force is more stable than the number of people of working age. Their number will fall by 2.4 per cent between 2021 and 2040 - from 46.3 million to 45.2 million people - and it may come as a surprise to some that the decline is not as sharp. The reason for this is that the propensity to work has increased in recent years and we expect this trend to continue. This development is primarily due to the increasing participation of women in the labour market.
This development is reflected in the number of people in employment. In our projections, the number of unemployed people will fall by almost 33 per cent by 2040. Generally speaking, this is good news for anyone looking for work. On the supply side, however, it also means that labour shortages, which already exist in certain professions today, will become even more acute and it will become more difficult for entrepreneurs to find suitable workers.
Changes in the labour market
Economic and professional structural change is leading to upheavals on the labour market. Some jobs are disappearing, but new jobs can also be created. It is worth looking at the supply and demand sides separately. Demographic changes not only have a supply effect on the labour market, but also have an impact on consumption. For example, older people demand different goods and services than a younger population. In the healthcare sector in particular, there is much more demand for services.
By 2030, structural change (grey bar, see chart on p. 20) will result in the loss of 1.9 million jobs that still existed in 2021. At the same time, however, 2.1 million jobs will be created. On balance, there will be 200,000 more jobs, and even 500,000 more by 2040, but we must also ask ourselves how many people will be available on the labour market to fill these jobs. As a result of the decline in the labour force discussed above, we expect the number of jobs filled to fall in the long term. This development is very different in the various sectors of the economy.
Demographic change will lead to an increase in employment in the healthcare and social services sectors. Taken together, we expect an increase in employment of around one million people. Various effects will come together in the education sector: The influx of refugees from Ukraine has increased the proportion of under 15-year-olds in the population, which means that more people are needed in education and teaching. In addition, greater academisation is leading to longer periods of education, which means that more workers are needed in this area, as is the increasing need for further training. Unsurprisingly, digitalisation has also led to an increase in employment in the ICT sector.
Public administration in particular is one of the sectors that is reducing employment. This is also linked to population trends: A smaller population requires fewer services in the public sector. We also assume that many public administration services can be further digitalised. The same applies to the wholesale and retail sectors: on the one hand, a declining population consumes fewer goods in terms of volume, while on the other hand, online retail is continuing to grow and there is great potential for digitalisation and automation here.
Regional labour market development
When looking at the labour market, regional labour market trends are of course also relevant. For our projections, we have divided Germany into a total of 34 labour market regions. These regions are composed in such a way that they form a common labour market and that the districts and independent cities belonging to the labour market region reflect commuting behaviour as closely as possible. Bamberg is part of the Nuremberg labour market region and there is quite a lot of networking in both directions, probably more pronounced in the direction of Nuremberg than vice versa.
For these regions, it is of course interesting to take another look at the working-age population. In Germany as a whole, only the Munich region will see a slight increase between 2021 and 2040 because Munich has an economic pull effect. The decline is particularly pronounced in the labour market regions of Magdeburg, Erfurt, Chemnitz and the Baltic Sea. For Bavaria as a whole, we expect the working-age population to decline by 4.7 % by 2040, while in the labour market region of Nuremberg it will be -9.3 % (see chart on page 21).
In addition, an urban-rural divide can be observed in this development, which is best illustrated by the situation here locally: We expect a decline of 0.7 % for the city of Bamberg and 13.2 % in the district of Bamberg. The local development of the labour market can therefore be significantly different from that of the entire labour market region.
This means that not all jobs can be filled. From 2030, we expect the number of jobs in Nuremberg to exceed the number of people in the labour force. In the long term, there will be a shortfall of 44,000 people. However, this is a lower limit because we have not taken any matching aspects into account: Not every person who is available on the labour market can also do every job. The shortage therefore arises without taking into account the qualifications of the labour force.
Development in the automotive industry
The automotive industry is particularly relevant for the Nuremberg labour market region due to the many large supplier companies. This affects the labour force in the manufacture of motor vehicles and motor vehicle parts as well as in trade, maintenance and repair.
At a national level, the number of employees in these areas will fall from 1.8 million to around 1.5 million in 2040. Four different effects are mainly responsible for this:
On the one hand, we expect lower growth in car stocks, again due to the declining population. However, this also applies to many of the vehicle industry's sales markets. For example, there is also a negative demographic trend in China, and this is reflected in demand. There is also a change in mobility behaviour. At least if you look at the cities, the trend is moving away from private transport and more towards public transport.
The major topic of electromobility also comes into play here. Electric cars are less labour-intensive to produce. This also reduces the need for labour in the long term. In addition, there is also stronger competition from abroad compared to the combustion engine.
Thirdly, we expect further productivity increases in the automotive industry through automation.
Fourthly, there is also a labour supply effect here due to the fact that a large proportion of existing employees will retire in the next few years. This decline is very different in the individual occupational groups. In absolute terms, people in mechanical engineering and industrial engineering are the most affected, while the decline in technical research and development is the smallest in relative terms. We are therefore seeing a shift towards more research and development at the expense of actual production.
Conclusion
I hope I have been able to make it clear to you that the future development of the labour market will be strongly influenced by demographic change. Structural change, i.e. changes in consumption and production in relation to demographics, digitalisation and decarbonisation, has a positive effect on the labour market, even though it can also mean that some people lose their jobs. The demand for labour is rising most strongly in the healthcare and education sectors and falling most strongly in public administration. The decline in the labour supply has a negative impact, as the number of people in employment will fall in the long term. This development is not set in stone, but is merely the result of our current projection. Measures can be taken to attract additional labour or increase productivity in order to reduce these bottlenecks.
For companies, this means that they need to modernise and digitalise in order to remain competitive. In the healthcare sector, digital administration can reduce the workload of nursing staff. The topic of innovation is also important, for example with regard to e-mobility. In order to remain competitive in the future and secure the corresponding market shares, the German automotive industry must focus on innovation. This will also help to preserve jobs in the automotive industry.
However, the availability of qualified labour is key. Both sides are in demand here: companies need to further qualify their existing workforce so that they can continue to meet the requirements of the labour market. And they need to be active in the area of training in order to attract new labour. Ultimately, however, everyone must also take care to keep themselves fit for the labour market and continue their training. Because even if the overall situation for employees is improving, there are often discrepancies between existing qualifications and the requirements of companies.
