German labour market remains strong

Good news with a bit of blush. German unemployment dropped by a non-seasonally adjusted 87,600 in September, bringing the total number of unemployed down to 2.708 million. In seasonally-adjusted terms, unemployment increased by 2,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.4%. The late-summer revival of the German labour market turned out to be softer than normal. In fact, today’s September numbers are the worst September performance of the German labour market since 2002. However, in our view, this is probably the effect of the summer vacation ending in September in more regional states than normally and not a sign of a structural weakening of the labour market. Interestingly, latest numbers show that the success story of the German labour market does not only hold for a couple of lucky ones but is actually spreading across the entire market. Last year, the number of people working in so-called “normal” employment conditions, ie mainly full-time working hours, increased by more than 450 000 jobs. In the same period, the number of low-wage jobs came down. A clear indication that despite constant headline numbers, the German labour market is still evolving positively. Looking ahead, and despite the uncertainty stemming from the Volkswagen crisis, the prospects for the German labour market remain bright. The number of vacancies is still increasing and employers, particularly in the service sector, have again stepped up their recruitment plans. According to a recent study, the often-discussed lack of qualified workers mainly occurs in the engineering, the metal and electronic industry. Obviously, these numbers will add comfort to the currently widely heard equation that an economy with a strong labour market, combined with high vacancies, the lack of qualified workers and the demographic change, can digest a high inflow of migrants. However, whether this equation is simple or only simplistic remains to be seen. Language skills, recognition of diploma, financial support and integration in society are just some issues that will determine whether Germany can really make it. In our view, one thing is for sure, a successful integration of the current migration inflows requires an unprecedented and long-lasting flexibility of the German economy and society. All in all, the German labour market will remain an important growth driver this year and beyond. The challenges ahead, however, are much bigger than the relatively dull and constant data from today’s report suggest.