Germany discovers the Corona crisis. In July, fewer citizens were looking for work than in the previous month. “Job growth continues. And companies are increasingly looking for new employees,” said Federal Employment Agency (BA) President Detlef Scheele. There are concerns about a fourth corona wave – and possible permanent damage from the pandemic.
So far, however, the positive trend has continued. The number of unemployed fell by 24,000 in July to just under 2.6 million. This is despite the fact that the number of job seekers generally increases during the holiday season, for example because some positions run out during this period and companies make few new offers. “It is quite unusual for unemployment to drop at the start of the summer break,” said the boss of the Scheele agency. The last time this happened was 15 years ago.
“At the moment, the labor market is recovering strongly from the pandemic,” analyzes Enzo Weber of the Institute for Research on Employment (IAB). There are several reasons for this. The world economy has been recovering for a long time. US President Joe Biden is boosting the economy with massive spending programs. German exports are increasing. The industry is hiring more people again, said the Ifo Institute in Munich. Chemical companies, for example, are increasingly looking for employees. In some companies there is already a shortage of skilled workers – just like before the crisis.
Possible fourth wave threatens growth
It has a positive effect that restaurants and shops that have been closed for a long time are allowed to open. The profession, hard hit for months, is hiring staff again. Overall, most sectors in Germany already have more employees with social insurance than before the pandemic – a great success.
Two risks emerge. Many companies are running out of chips and other parts. The car manufacturer Daimler therefore sends thousands of employees on short-time work. However, many economists view these problems as temporary. A fourth corona wave from the highly contagious Delta variant could become a bigger problem. Leading indicators of the economy such as the Ifo index are already falling.
There are still many unanswered questions. Do so many restaurants and shops have to be closed with a new corona wave if, unlike previous waves, many Germans are vaccinated? “The risks are increasing,” summarizes IAB researcher Enzo Weber – and is nevertheless optimistic that there will be no dramatic consequences for employment. The head of the Scheele agency called on citizens to get vaccinated: “The data shows that the vaccines work despite the Delta variant”. Scheele called for a debate on granting immunized and convalescent privileges. “You can’t just let it go, the risks to the economy and to society are too great.”
Overall, one way or another, corona damage will stay in the job market. In 2019, the year before the pandemic, the number of employees increased each month by around 40,000. The virus has prevented that increase since the spring of last year – and has destroyed jobs, too. Half a million citizens had fewer jobs in June than before the pandemic.
In addition, the corona crisis fueled structural changes. Germans buy more online and less in department stores. Video conferences are replacing business trips with flights and overnight stays at hotels. Hundreds of thousands of jobs are permanently lost. Yes, the change is also bringing new jobs, in information technology, in the pharmaceutical and health sectors. The bottom line, however, is that economist Weber calculates a permanent crown minus 200,000 jobs.
After inflation, wages fall
Employees are feeling another effect of the crisis in their portfolio: their salaries are not growing as well as in previous years. According to the Institute of Economics and Social Sciences (WSI), wages previously agreed to in a collective agreement will only increase by 1.6% on average this year. For comparison: in 2018 and 2019, the plus was almost twice as high. The drop is easily explained: given the severe recession, unions have recently hardly insisted on significant wage increases in order not to provoke layoffs. IG Metall was satisfied with a one-time bonus for the four million employees in the industry. A permanent salary increase was only agreed for next year.
The fact that consumer prices are rising more sharply this year than they have been for a long time is having a negative impact on employees. This is why conventional wages decrease even if inflation is taken into account. Although the minus 0.2 percent isn’t great. But it is a turning point for employees: real wages are falling for the first time in ten years. This has only happened three times in the past two decades.
What’s the next step in the job market? In order for the unemployment base not to increase in the long run, a large number of new hires are needed after a crisis. This has only happened once after the severe recessions in the Federal Republic of Germany: after the 2008/2009 financial crisis. This time, however, the country is not only experiencing a recession, but also a transition to digitization and less climate-damaging cars and steel products. There are several hundred thousand more long-term unemployed than before the crisis.
IAB economist Weber is calling on the next federal government to take countermeasures to keep long-term damage as low as possible. For example, with more wage subsidies for companies that hire staff. And with the financing of secondary training for employees who change jobs – for example because their car manufacturer no longer produces combustion engines.