In a nutshell
Many thousands of refugees flocked to EU member states in 2015 and 2016, especially to Germany. As has been widely and controversially discussed. The much more serious and longer-term problem of demographic change has been adeptly sidestepped, however. Although it may sound unpopular to some: immigration is vital for Germany, as there is no other way to offset demographic change. This is because the population is constantly ageing and neither the labour market, municipal infrastructure investments, nor the German pension system are currently adequately prepared.
Europe's century-long task
The increasingly ageing population is already high on the political agenda and will pose a major challenge for the next generation. If things remain as they are, today's children will have to pay much higher pension contributions than their parents and grandparents – and receive considerably less money in return when they are old. Although demographic change is considered when adjusting pensions, this is not sufficient to prevent the scenario just described. There are certainly alternatives, however, to the existing system. For instance, pension levels at retirement age could be fixed at current levels, or even slightly higher, and the pensions of those who have already retired only be increased in line with inflation. Living standards would therefore be maintained. On the other hand, people's work-life balance must be improved, so that couples are not afraid to have children. Almost 10 years ago, the IWH determined that women only continue to work part time after having children, particularly in western Germany.
Germany's towns are also paying too little attention to demographic change and thus the future. They primarily make investments based on the current financial situation and too little on how the population will develop in future. If towns continue to do this, some will be chronically under-funded and others over-funded in 20 years' time.
Another problem is the shortage of skilled workers. In order to make it attractive for well-trained specialists to move to Germany from overseas, a targeted immigration policy is required. The projects launched to date, such as Blue Card, have not been as successful as hoped. So Germany currently remains isolated from the international pool of highly-qualified workers. A points-based system could be a promising alternative.
At the same time, Germany is facing the huge humanitarian dilemma of refugees; the enormous wave of migration since 2015 is placing considerable demands on Europe. The asylum system in Europe still has major shortcomings. A coherent European asylum policy is currently more important than ever, but the refugees have been very unevenly distributed within Europe. The IWH mooted a strategy for their equitable distribution back in 2015, which takes into account both the allocation of people and the costs.
In addition, the state must sustainably manage the integration of newcomers into our culture and labour market. This also includes improving social mobility within our society, in order to provide immigrants with good training opportunities. "Germany has been asleep for the last ten years. We have not seriously considered how we will handle our population development in 15 years' time," says Reint Gropp, President of the IWH in an interview with Mitteldeutsche Zeitung.
Despite the intake of 1.2m refugees over the past two years, Germany’s population suffers a serious decline. Especially in Eastern Germany total population shrinks. According to the OECD, about half of asylum-seekers who started off in eastern Germany in the past moved to places such as Hamburg once they secured their permit.
Whether and how this country can make economic use of the opportunities presented by immigration is currently still under discussion. Integration is a fundamental part of this debate. Due to the complexity of the issue, an interdisciplinary, scientific approach, such as that of the ‘Crises of a globalised world’ Research Group, is essential, in order to understand the reciprocal mechanisms and dynamics. For example, analyses by the IWH show that measures to cope with immigration during late 2015 triggered additional economic impetus. National and regional governments increased their budgets, while spending on housing, food, medical care and general support for refugees fuelled demand and production, especially in the construction and hospitality sectors, as well as in professional services. According to calculations by the Joint Economic Forecast Project Group, migration-related expenditure across Germany contributed 0.1 percent to the growth in gross domestic product in 2015.
Today, one in 113 people in the world is considered to be a refugee – 65 million in total. In order to resolve the complex ‘asylum’ problem, politicians need to be much better organised and ideally develop collective actions. This is the only way to achieve a solution that is as efficient as possible – and above all humanitarian.
Demographic change is profoundly affecting various social spheres, yet is still underestimated by politicians and citizens. Pensions, future investments, migration – all these things are having a direct, immediate impact on people in Germany. Which is precisely why timely, sustainable solutions are required that do not simply pay lip service to sustainability.
Publications on "Demographic Change"
Will there be a shortage of skilled labor? An East German perspective to 2015
in: Applied Economics Quarterly Supplement, 2009
We analyze the supply and demand of skilled labor in an East German federal state, Thuringia. This state has been facing high unemployment in the course of economic transformation and experiences population aging and shrinking more rapidly than most West European regions. In a first step, we use extrapolation techniques to forecast labor supply and demand for the period from 2009 to 2015, disaggregated by type of qualification. The analysis does not corroborate the notion of an imminent skilled-labor shortage but provides hints for a tightening labor market for skilled workers. In a second step, we ask firms about their appraisal of future recruitment conditions, and both current and planned strategies in the context of personnel management. The majority of firms plans to expand further education efforts and to hire older workers. The study closes with policy recommendations to prevent occupational mismatch.
Mit 55 zum alten Eisen? Eine Analyse des Alterseinflusses auf die Produktivität anhand des LIAB
in: Zeitschrift für Arbeitsmarktforschung, No. 1, 2007
"Against the background of an aging labor force in Germany and insufficient job opportunities for older people, the paper raises the question as to how age affects the productivity of workers. Due to opposite developments of certain human abilities across the life span, gerontological research supports the hypothesis of an inverted u-shaped age-productivity profile. Middle aged workers are supposed to achieve the highest productivity level, whereas both young and old employees should show lower productivity levels. The analysis is carried out on the basis of a new linked employer-employee dataset of the Institute for Employment Research (LIAB). Within a production function framework it is tested econometrically whether the age composition of a firm's workforce affects its productivity and if so in what way. The regressions are carried out separately for the manufacturing and the service sectors. The cross-section estimations of the year 2003 reveal a positive correlation between firm productivity and the share of middle-aged employees (35-44 years old). Furthermore, in the manufacturing sector, a negative correlation between productivity and the proportion of the youngest age group (15-24 years old) can be seen. Thus the results provide evidence of an inverted u-shaped age-productivity profile in this sector. In the service sector, in contrast, the share of the youngest workers seems to increase productivity compared to the reference group of the 55-64 year-old employees.