Spring/Summer 2024 Germany Labour Market Analysis: Managing Evolving Workforce Dynamics

As Germany confronts ongoing economic challenges and skilled worker shortages, the importance of workforce flexibility continues to increase, as does the pivotal role of technology, compliance and communication in optimising workforce management. Amidst the aftermath of last year’s mixed economic indicators, Germany stands at a juncture where adaptability is paramount for sustainable progress.

Our comprehensive "Spring/Summer 2024 Europe Labour Market Report” explores the intricate dynamics shaping the European, and specifically the German, market. Here’s a high-level look at the landscape in Germany and our related recommendations:

Macro Environment

Affected by the lingering effects of the energy crisis in Europe, Germany is forecast to have a slow start to 2024 after sluggish growth in 2023. However, there are also positive indicators as inflation rates continue to decline moving into 2024 (YoY 3.1% as of early 2024) and that private household consumption will return to pre-pandemic levels in the second half of 2024. While the rate of job vacancies remains high and unemployment remains relatively stable at around 3% of the eligible labour force (6% according to local statistics by the Federal Employment Agency), there are initial signs of a rising trend in unemployment.

As the German macro-economic climate continues to stagnate, the labour market is expected to soften. Whilst unemployment levels remain low and vacancy rates high, companies will continue to be in cost-savings mode, preferring to wait for global economic improvement before testing the market.

Skills in Demand

Global demand for technology skills, driven by the growth of AI, is at an all-time high, and Germany is no exception. As such, there is strong demand for skilled workers in software engineering and data science with expertise in AI and machine learning. In-demand job titles include:

• Data Scientist
• Information Security Specialist
• Software Developer
• UX/UI Designer

With Germany a large industrial country and major exporter in the automotive and pharmaceuticals industries, there is also high demand for engineering professionals. The nation’s commitment to becoming greenhouse gas neutral by 2045 is also fueling growth in engineering professions, such as energy consultants, environmental engineers, and automotive engineers.

Quick recommendation: Workers with AI talent are a unique group with nuances in skillsets. Sourcing these candidates requires good data to ensure compensation is competitive and sourcing strategies are consistent with where the talent can be found. Since AI-related skillsets are a relatively new phenomenon and thus less likely to show up in standard work histories, job titles or degrees, organisations will also need to shift to a skills-based approach if they want to find these candidates – whether sourcing externally or filling gaps internally through upskilling and/or redeployment.

The first step to shifting to a skills-based approach is deepening your understanding of your current skills inventory. Looking across your entire catalog of job descriptions, business units, and locations around the globe, what skills do you have in your organisation? Historically this has been a manual, time-consuming task, but AI technology has emerged that enables companies to synthesize this information at tremendous speed and scale, parsing out key skills, matching them to job descriptions and identifying gaps.

Other Trends

In 2023 wage growth in Germany increased by 6.6% from 2022, but accounting for high inflation rates, real-term wage growth was only 0.1%. In 2024, the pressure on companies to increase wages is expected to continue, especially in high-demand markets such as IT and engineering, where skilled labourers take advantage of high demand and low supply, favouring roles that offer fully remote or hybrid working conditions and attractive remuneration packages.

Employers that offer less than 30 days paid holiday (the minimum is 20 days in Germany with a standard 5-day working week) may struggle to find suitable candidates, even if the salary offered is above market rate. As remote working continues to gain popularity, German companies will need to quickly adapt to retain high-performing talent in today’s rapidly changing market.

From a compliance and risk management perspective, strict regulations, bureaucratic challenges, and the impact of reforms like the 2017 AÜG have added complexity to the contingent labour market. Key considerations for navigating compliance challenges include:

• Ensuring proper documentation
  
• The use of qualified electronic signatures
• Legal bases for data processing
• Consideration of GPDR regulations

Companies are advised to prioritise continuous learning and adaptability, as well as collaborating with external support, to achieve effective compliance management.

Quick recommendation: When evaluating areas like flexible work hours, enhanced benefits and remote work options, the factors organisations will need to consider will be unique to each individual company. Taking a data-driven approach rather than one based on emotion or tradition will help ensure policies that drive improved talent acquisition and retention and maintain the proper balance between employee experience and operational sustainability.

To that end, capture and analyse data around workforce preferences, employee satisfaction, productivity, and financial impact when formulating your approach in these areas. Potential areas to assess include:

• Performance: Monitor workforce effectiveness and program output
  
• Cost: What does time to fill look like, and how much is the company paying for this type of talent?
• Sentiment: Track employee surveys and turnover, evaluate talent volatility, and analyse talent migration patterns

Get the Full Report

Our new “Spring/Summer 2024 Europe Labour Market Report” also includes bill rates for key job titles in Germany, as well as exploration of high-level trends across Europe and recommendations for optimising workforce management. Beyond this broader analysis, we also dig deeper into the economic landscape in the UK, Ireland, Sweden, the Netherlands and Switzerland. For much more, download the report now.

Disclaimer: The content in this blog post is for informational purposes only and cannot be construed as specific legal advice or as a substitute for legal advice. The blog post reflects the opinion of Magnit and is not to be construed as legal solutions and positions. Contact an attorney for specific advice and guidance for specific issues or questions.