In an interview with SPIEGEL Online, IZA’s new CEO Simon Jäger comments about the labor shortages that many German industries are complaining about, and suggests a simple solution. Below is an English translation of the German interview.
SPIEGEL: Mr. Jäger, companies are unable to fill around two million vacancies. Teachers, daycare staff, nurses and IT specialists are desperately needed. And you claim there is no labor shortage?
Simon Jäger: Yes, these labor shortages are essentially a myth.
Firms have been complaining about a shortage of skilled workers for the past 40 years.
SPIEGEL: What makes you think that?
Jäger: In the debate, we have to distinguish between two situations: now and in the future. Currently, there are more people in work in Germany than ever before – 45.9 million people who are better educated than all previous cohorts. Firms have been complaining about the shortage of skilled workers for the past 40 years. However, there is a simple market-based solution: higher wages. If a company offers higher wages or better working conditions, it becomes more attractive.
SPIEGEL: And if employers can’t afford that?
Jäger: Of course, in the case of hairdressers, for example, it depends on what price customers are willing to pay. But that doesn’t change the fact that there is no shortage of workers overall, they are just elsewhere. In this respect, the crucial question is: Who works where? We know from various studies that people move to jobs – or stay in jobs – that offer good wages and working conditions. So there is a simple market-based solution.
If firms want to find or retain workers, they will need to pay more or create better working conditions.
SPIEGEL: So the market takes care of everything?
Jäger: If firms are looking for workers or want to retain them, they will need to pay more or create better working conditions. But what we saw last year were massive real wage losses for employees, while at the same time employment was at a record high. That doesn’t fit with claims of labor shortages. In economic terms, we have an unusual situation: workers are in high demand, but real wages have fallen. Incidentally, this perceived shortage of skilled workers and the price signals sent by the market may also be socially desirable.
SPIEGEL: What do you mean?
Jäger: Over the last 30 years, we see that real incomes in the low-wage sector have stagnated on average, even though overall productivity has risen sharply. For a long time, lower incomes have hardly benefited from economic growth. But the low-wage sector is precisely where the pressure is now felt most.
SPIEGEL: Demographic change will reduce the number of workers available to the labor market in the future. Won’t skilled workers then be in short supply?
Jäger: We are an aging society. In the long term, the labor force potential will decline sharply. However, it is possible to take effective countermeasures.
SPIEGEL: The German government’s skilled labor strategy calls for higher female labor force participation, a modern immigration policy and targeted training measures. Are these the right steps?
An efficient allocation of the labor force is essential.
Jäger: Society must decide what answers to give. That’s a political decision. If we want to prevent the labor market in Germany from shrinking, a variety of measures could be effective. Highly mobile, international skilled workers can choose to go to the U.S., Sweden or Switzerland. For Germany to stand a chance in the fight for talent, we will need higher wages, better working conditions and long-term prospects for immigrants. And the system of joint income taxation of married couples still stands in the way of higher female labor force participation.
SPIEGEL: Measured against the demand for labor, there will still be a shortage in the future.
Jäger: If workers are in short supply, we must ensure that they are deployed where they create the greatest added value. An efficient allocation of the labor force is essential.
SPIEGEL: Can you give an example?
Jäger: Teachers are a good example. Working conditions in schools are not enticing, and teachers are frustrated. Qualified workers often don’t switch from the private sector to the teaching profession even if they would like to work at a school. Part of the problem is that we under-resource our schools.
The perceived shortage of skilled workers is just a symptom of the underlying problem.
SPIEGEL: Higher wages in daycare centers, nursing homes or in the public sector lead to higher daycare fees, health insurance contributions or tax payments.
Jäger: This discussion lacks openness. In fact, the labor shortage debate is essentially a societal debate about the areas in which we want to deploy our resources. Everything comes at a cost. That’s what it comes down to. The perceived shortage of skilled workers is just a symptom of the underlying problem: the distribution of scarce resources.
SPIEGEL: In 2022, 19 percent of employees worked in the low-wage sector, earning less than 12.50 euros per hour. Is there a way out for these people?
Jäger: In our research, we show that, especially in the low-wage sector, many employees in Germany underestimate how much money they could earn elsewhere. So they are actually paid less than they think. When they are informed about what comparable employees earn, they increasingly look for another job or renegotiate. So the low-wage trap at the bottom end of the wage distribution also has something to do with the transparency of wages.
SPIEGEL: In Austria, employers must indicate a wage floor in job ads. Does this transparency help employees earn higher wages?
Jäger: Studies from several countries suggest that such wage transparency leads to more competition, and companies tend to raise wages as a result.
SPIEGEL: Generation Z, born from the late 1990s onward, has a different perspective on gainful employment than previous generations: part-time is in demand, overtime less so. Time is precious, the future is uncertain, and the standard of living of one’s parents seems unattainable anyway. What can we do if people simply don’t want to work as much in the future?
Jäger: It helps to give people more flexibility in their working lives. A doctoral student of mine studied the impact of flexible working hours in Australia: Young mothers are more likely to work, and they work more. Also, the “motherhood penalty” has shrunk. That means the income gap between men and women after the birth of their first child has narrowed. The reform is a good example of how total hours worked could increase if people are given more working-time flexibility.
SPIEGEL: Until now, employment contracts have been rather rigid in Germany – it’s common to work either 20 or 40 hours.
Jäger: Many companies in Germany already have flexible working-time models, often in successful cooperation with the works council. In the future, it would be good to have additional options especially for older workers. Employees and employers could flexibly agree on the scope of work between zero and 100 percent. Some people would choose 80 percent, others 60 percent. Older workers could then, for example, care for their grandchildren more often and continue to work. Overall, more flexibility could lead to more hours worked in total.
SPIEGEL: Would that also be an alternative to raising the retirement age?
Jäger: Making working hours more flexible could at least calm down the debate about the retirement age a little. Employees could work longer – but with fewer hours per week. Many people feel the desire to meet colleagues at work, to engage in fulfilling activities or to pass on their knowledge to young colleagues. Those who decide independently and flexibly to work less will still remain in the labor market. To stabilize the pension system in the long run, however, the option of raising the retirement age must remain on the table.