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Help Wanted Will Dearth of Experts Starve German Economy?

The success of Germany's economy has long been driven by small and mid-sized companies dependent on skilled labor. But a developing shortage of experts represents a threat to the country's economic future. With babies in short supply, immigration could be the answer.

Three long years. That is how long Carl Stahl GmbH München, one of the myriad lesser-known companies in Germany that keep the country's economy humming, has been trying to fill a trio of job openings. They need an expert in testing technologies. They need a specialized machinist. And they need a rope and cable expert.

But they can't find them. "The market is completely empty," says company head Rupert Hetterer. "We currently have full employment in southern Germany and it is extremely difficult to find people."

Hetterer's company, which belongs to the larger Carl Stahl Group, makes all manner of specialized cranes, cables, lifters and pulleys. As a family owned operation employing close to 100 people, it belongs to the category of German small and medium-sized firms known as the Mittelstand that drives exports and is widely seen as a key reason that the country has managed to avoid slipping into the economic distress afflicting much of the rest of Europe.

Increasingly, though, the Achilles heel of these companies is being exposed. They are extremely dependent on finding or developing highly trained personnel so as to remain a step ahead of competitors overseas. Yet the experience of Carl Stahl is not unique. Many companies have begun complaining in recent years of a growing shortage of qualified specialists in Germany, and projections that it could grow worse are enough to keep German economists and politicians up at night.

And, as has become increasingly plain, the development might be enough to force the country to accelerate its shift toward targeting immigration as a solution to the problem.

'10,000 Every Month'

"By 2025, we will need roughly 1.5 million experts from abroad," the new president of the Association of German Chambers of Commerce and Industry, Eric Schweitzer, insisted in an interview with the mass-circulation Bild newspaper in early April. "That means roughly 10,000 every month."

Though Schweitzer is anything but an impartial observer, the numbers do indeed look grim. According to the Federal Employment Agency, demographic realities in aging Germany mean that the labor force will decline by 6.5 million people by 2025. The agency also cites studies indicating that there will be a lack of 2 million skilled workers by 2020 and a shortage of 5.2 million a decade later.

"We will not be able to meet the demand with domestic supply," says Vera Demary, an expert on the German labor market with the Cologne Institute for Economic Research. "We will definitely be dependent on bringing in more immigrants."

That's a conclusion many German companies, chambers of commerce and other bodies representing a variety of economic sectors have already reached on their own. This winter and spring has seen an explosion of programs and consultants intent on bringing in technicians, craftsmen, healthcare workers and IT specialists from elsewhere in Europe.

Of particular note is a campaign launched by the Munich Chamber of Crafts which seeks to be a one-stop-shop for Bavarian companies interested in hiring specialists from regions of Spain suffering from high unemployment. Launched in December, the program handles recruitment, sets up interviews for companies in need, takes care of travel arrangements for workers coming to Germany and even helps with language difficulties. Already, the program has received hundreds of applicants and began placing workers last month.

Project leader Katrin Budick is quick to note that it is "but a drop in the ocean," but adds that the goal is for the newcomers to feel welcome. Rather than a repeat of the "guest worker" model pursued during Germany's postwar economic revival -- one which presumed that immigrant labor would eventually return home -- Budick says that "the goal is that the applicants will be employed long term, that they feel at home and that they become prosperous here."

The Importance of Language

There are indications that Budick's program could be on to something. According to Frank-Jürgen Weise, head of the Federal Employment Agency, the ongoing euro crisis and associated economic difficulties in Southern Europe resulted in a significant jump in immigration  to Germany from that part of the Continent in 2012. Leading the list was Greece , with a 16.7 percent spike, and Spain, with almost 11 percent. Furthermore, Germany's Goethe Institute noted in December that it has seen record numbers of people signing up for its German language courses, particularly in countries hit hardest by the euro crisis.

Still, it is not clear that immigration will truly be able to sate Germany's growing hunger for specialists. For one, as Carl Stahl's Hetterer points out, language is a vital factor, particularly given that many of Germany's small and mid-sized companies have not adopted English as their official language in the way that many large international corporations have done.

"Immigration is certainly one possible solution," Hetterer said, making it clear that he supports a more open immigration policy. "I would welcome it very much if someone from Spain were to come over and look for a job for us. But they have to have taken German classes first and be well qualified for the job."

For another, Germany has long been reticent about opening its doors to significant immigration of the kind that might be needed to compensate for the country's demographic challenges . United Nations population projections forecast that by 2020, there will be about 60 percent more people leaving the working population in Germany than entering it, the worst mark among all countries belonging to the Organization for Economic Cooperation and Development (OECD). Yet an OECD study released in February noted that Germany continues to lag behind other industrialized countries such as Canada, Australia, Britain and Denmark in recruiting overseas experts.

Worryingly, a survey conducted for the report found that the most common reasons given by companies for not looking beyond Germany's borders was that they "haven't even considered it" and that it was "too complicated." "Germany's prosperity depends to a considerable extent on whether it manages to remain competitive despite its ageing population," warned OECD Secretary General Yves Leterme when presenting the report.

Competing for Experts

Leterme did emphasize that Germany has taken several steps to remove hurdles. Last April, Berlin passed a law making it easier for foreign specialists to have their qualifications recognized in Germany. Since then, 30,000 people have taken advantage of the new measures. That, though, is a far cry from the 300,000 people former Education Minister Annette Schavan hoped for when she announced the program last April.

"We have made lots of progress in recent years because we know that we are in competition with other countries," said Demary from the Cologne Institute for Economic Research. "There are many companies that do a really good job of this, such as establishing a contact person for newcomers. But many companies don't have experience in working with foreigners. We have to establish a welcoming culture so that people want to stay here in the long term, particularly in small and mid-sized companies."

Still, complaints from companies such as Carl Stahl notwithstanding, analysts are quick to point out that Germany has yet to begin feeling the true brunt of a labor shortage most are sure will ultimately arrive. Thus far, scarcities have hit certain sectors, such as in the medical field, old-age care and highly specialized occupations, while others continue to have little trouble filling job openings. Furthermore, small companies in small towns have trouble luring experts , whether from Germany or abroad, away from the cities. And many of the best trained experts from Eastern Germany have long since sought their fortunes elsewhere, making it challenging for companies there. But the phenomenon is far from universal.

"I think the problem will ultimately be more in the countryside  than in the cities," says Elisabeth Krekel, a researcher with the Federal Institute for Vocational Education and Training. "Cities are more attractive and can offer a better quality of life. Companies elsewhere will have to do a better job of attracting people and that will be a challenge."

Already, though, Germany's decades-long shortage of babies has been making itself felt in the country's vaunted training system. Called the "duale Ausbildung," or two-track vocational training, the system provides an even share of both classic classroom education and practical, hands-on training on factory floors, in offices or in the fields. It is this system, which arose centuries ago out of Germany's guilds, that President Barack Obama highlighted in his state of the union address in February when he said that the United States needed to be more like Germany. And it is one that has served the country well, being the primary source of highly trained labor for the country's numerous small and mid-sized enterprises.

Focusing on the Bottom Line

But recent indications are that it might be in trouble. A March article in the business daily Handelsblatt, citing an unpublished Education Ministry report, noted that only 21.7 percent of German companies still take part in the duale Ausbildung program, the lowest share since 1999 and the number of available traineeships is consequently sliding. Moreover, the number of traineeship contracts is dropping -- by 2 percent from 2011 to 2012 and, according to a forecast in the report, and likely by another 3 percent this year.

This parallel drop in supply and demand may, at first glance, seem to indicate that the system is merely reacting to Germany's growing demographic imbalance. But there are other possible factors at work as well. Such as cost.

"A traineeship takes three years and costs companies a lot of money," explains Frank Braun, formerly the director of the "youth transitions" research unit at the German Youth Institute. "Earlier it was such that larger companies thought far into the future to determine their needs. But then came a phase when they began looking toward the bottom line and stopped looking so far into the future. That could be a long-term trend."

If so, it would be an incredibly short sighted one. At Carl Stahl GmbH in Munich, all of the company's management positions and most of its specialists were trained on site via duale Ausbildung and have spent their entire careers at the company, explains CEO Hetterer. But he also notes another phenomenon his company has noticed recently. "We have long wanted to train more people," he says. "But we have been having increasing difficulties finding suitable trainees for certain jobs."

Martin Wansleben, head of the Association of German Chambers of Commerce and Industry, was even more direct in a March interview with the Handelsblatt. He said that three out of four companies complained in a 2012 survey that "there are fewer and fewer youth who are qualified for traineeships."

A Danger to the Economy

The statement is not uncontroversial, but there is a possible explanation for why it might be true. Even as the number of school graduates in Germany is on a downward slide, the numbers of those going to university -- rather than entering the duale Ausbildung program -- is rising, and has shot up by over a quarter in the last decade, according to Germany's Federal Statistical Office.

The development is one the German government has done all it can to promote, not least because of external pressure. The OECD has repeatedly criticized Germany for lagging behind on university study. In 2009, the head of the OECD's Education Directorate, Barbara Ischinger, said: "If Germany wants to emerge strengthened from this financial crisis, now would be the time to invest in higher education and training." In 2011, the organization warned that Germany was lower than average when it comes to the share of young people studying at university. Politicians in Berlin have echoed the concerns and thrown millions at the perceived problem. Concurrently, the university system in Germany has adopted the bachelors and masters system seen in the US and the United Kingdom, radically shortening the time it takes to earn a degree.

A potential side-effect, however, is a shortage of qualified people available for high-end, technical traineeships.

It is a phenomenon that has only recently been introduced into the national debate on the traineeship program. But analysts are willing to allow that it may play a role in the downward trend. "When you have the option to study, and because Germany would like to have a certain level of people studying, it will certainly have an effect on the system," said Krekel from the Federal Institute for Vocational Education and Training.

Just how Germany resolves its growing lack of specialized workers in the future remains to be seen. Certainly the trainee system will play a significant role, as will immigration. Many also point to a need to increase workplace flexibility so as to make it easier for women raising children to work full time, an issue which remains problematic in Germany. Furthermore, the country's substantial immigrant population must be tapped more efficiently.

After all, the dangers to German companies and to the country's economy on the whole are significant. "When companies don't have the personnel they need," warns Demary, "orders take longer to be filled or they can't be filled at all. That could lead to a situation where a company is unable to take on business. At that point, they would move out of Germany and go to where the workers are."

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