The deficit between workers leaving the workforce-primarily Baby Boomers-and the younger entrants could be considerably larger over the next decade than previously anticipated. This significant gap is highlighted in a new, yet-to-be-published study by the Institute for the German Economy (IW), which was reported by the “Rheinische Post” (Saturday edition).
According to the Institute’s revised forecasts, the labor shortage is projected to reach approximately 4.3 million workers by 2036. This is a substantial increase when compared to the Institute’s previous calculation two years ago, which had estimated the difference at just under three million. The new figure is thus estimated to be roughly 1.3 million greater than in 2024.
This projection increase stems from a new population forecast, which relies on updated data from the Federal Statistical Office and indicates a worsening demographic outlook for Germany. These new figures suggest that the national population will decline by 2.9 percent, reaching around 81.1 million people by 2045. Previously, the IW had assumed moderate growth until 2040.
The Institute cites several factors contributing to this negative outlook. These include the federal government’s migratory shift, leading to fewer new immigrants arriving in Germany, as well as a diminishing interest in Germany due to persistent economic weakness and growing labor market issues.
The new IW report specifies that only 9.8 million people will reach working-age by 2036, resulting in the projected 4.3-million-person gap. Consequently, the labor pool capacity is expected to drop by 6.9 percent, moving from 55 million in 2025 to 51.2 million by 2036. Long-term, the workforce potential is projected to decline by 8.3 percent, settling at 50.4 million people by 2045.
To mitigate this decline, the study argues that political intervention is necessary to boost labor potential. The Institute suggests that attracting skilled foreign labor has untapped potential. Furthermore, there is untapped potential within Germany itself, particularly among foreign women. Increasing the average hours worked per person is also crucial. Although Germany already maintains a high employment rate compared to other nations, the IW notes that the average hours worked per capita remain low, meaning work must become more appealing. Central to this appeal is the question of economic benefit; the Institute suggests that even most full-time employees would consider expanding their working hours if the burden of taxes and social contributions were reduced.
