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FT.com / Home UK / UK - Germany's skills gap costs it €20bn a year

Germany's skills gap costs it €20bn a year
By Bertrand Benoit in Berlin

Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00

Germany's chronic skills shortage is costing its economy up to €20bn ($27bn, £13.6bn) a year, or one percentage point of gross domestic product, according to a study commissioned by the economics ministry.

The failure of Germany's education system to foster skills required by its fast-growing export industry could inflict "long-term damage" to Europe's largest economy, Michael Glos,economics minister, saidyesterday.

The publication, the first attempt at putting a price on Germany's skills bottleneck, comes as the cabinet of chancellor Angela Merkel is preparing to meet at Meseberg, north of Berlin, on Thursday for its two-day mid-term conclave.

Government officials said the "grand coalition" of Christian and Social Democrats had agreed on a "national qualification offensive" aimed at addressing the skills problem.

This matched proposals unveiled by Mr Glos yesterday, including more public and private spending on education and closer co-operation between business and academia. He also urged universities to adapt to the market's requirements and companies to hire more women, older workers and foreigners living in Germany.

The minister was cautious in advocating more immigration, however, reflecting concern among the ruling parties about the vote-losing potential of opening Germany's tight borders.

Currently, non-EU residents who wish to work in Germany must have a yearly income of €80,000. Germany also has the toughest restrictions in the European Union on citizens from new member states.

The skills shortage has become a source of tension between business and politics. While the large industry federations have called for a relaxation of Germany's immigration laws, politicians have accused companies of preferring cheap foreign labour over costly in-house training.

"There is no short-term solution to this problem," said Oliver Koppel, economist a the IW Institute on the German Economy and author of the study. "The eastern European graduates who would have come a few years ago are all in the UK and the US now."

Even there, there is little the federal government can do directly to boost university budgets since education falls within the remit of 16 state governments.

Mr Koppel's study was based on a survey of 2,400 companies, about 85 per cent of which have returned their questionnaires. The cost of the skills shortage was calculated by multiplying the number of unfilled vacancies by a worker's average contribution to Germany's GDP.

Though the estimate of €20bn might appear high, he said, the figure reflected only direct costs. "There are a range of indirect costs too that we did not take into account."

The survey showed the drought of engineers, natural scientists and programmers was acute in sectors with high research and development budgets.

Carmakers, capital goods manufacturers and electronics companies, some of Germany's best export sectors, were among the most affected.

Copyright The Financial Times Limited 2007