Germany Woos Older Workers as Supply of Young Employees Dries Up

BMW factory

A BMW worker on a production line at Dingolfing, southern Germany

Werner Brockmann has spent his entire 48-year career working as an electrician for Deutsche Bahn.

As the 62-year-old approached his retirement date the German rail operator, rather than presenting him with a gold watch, offered a deal that allowed Mr Brockmann to swap 13 per cent of his salary for an additional nine weeks holiday.

“I can have almost the whole summer at home,” he said.

Mr Brockmann is a beneficiary of the unexpected dividend that Germany’s demographic change has paid to some of its older workers.

While countries in southern Europe are beset by a plague of youth unemployment, German companies are desperately trying to hold on to older workers.

“German companies are facing a labour shortage. It is difficult for them to get competent, highly skilled employees,” said Nils Stieglitz, professor of strategic management at Frankfurt School of Finance and Management. “One way to compensate is to extend the lifetime of their employees.”

As a consequence, Prof Stieglitz said, pressure was mounting on German employers to offer a better work-life balance to retain older employees.

Yet critics said the move is also part of a worrying trend towards reliance on an ageing workforce that means the country will increasingly struggle to fund its pensions system.

As governments across Europe have pushed through plans to raise retirement ages, Germany, the continent’s strongest economy, has taken a step in the opposite direction.

The country recently unveiled draft legislation to lower the retirement age to 63 for workers such as Mr Brockmann who have contributed to the system for 45 years.

The government estimates that, each year, about 200,000 workers will be able to retire early under this legislation – a proposal that will cost €60bn between its planned introduction in July and 2020.

The remainder of the workforce will be required to keep to the current retirement age, which is being raised from 65 to 67.

German companies are facing a labour shortage. It is difficult for them to get competent, highly skilled employees”

– Nils Stieglitz, Frankfurt School of Finance and Management

Analysts said the new plan to lower the retirement age was a vote-winning tactic urged on chancellor Angela Merkel by the Social Democrats, junior partners in her new coalition government.

Anika Rasner, research associate at the German Institute for Economic Research, said the proposals were “client politics” – a way of appeasing special interest groups. “It is an absolute break with the reform logic of previous years,” she said.

The plan has also been criticised by German business leaders, who have had to work hard in recent years to hang on to older employees.

Ulrich Grillo, president of the BDI, Germany’s largest employers’ organisation, said the country could not urge reform on others while lowering its own retirement age, accusing the government of “preaching water while drinking wine”.

Sigrid Heudorf, head of employment conditions at Deutsche Bahn, described the early retirement proposal as a “significant issue” for the company.

“We have a tough occupational image – employees who work outside on maintenance and do shift work, including night shifts. I can imagine some will think, I’ll go early.”

For decades, German employers made such extensive use of early retirement to reshape their businesses that the employment rate for older men registered one of the sharpest declines of any European country.

All that has changed as the supply of younger workers dried up. Germany’s low birth rate meant the working-age population began to decline 10 years ago, a trend that will accelerate from 2020 when the baby-boomers generation begins to retire.

High net migration to Germany has softened the impact of the country’s ageing, and the German government remains keen to attract more immigrants to make up the future shortfall of workers.

Germany’s robust economy has also strengthened workers’ bargaining power.

Deutsche Bahn struck a deal with the railway union last year, offering part-time work to older employees in some of the hardest-to-fill parts of the business, including shift workers and those on call.

The company has also made other changes to reflect its older workforce, such as more lifting gear to move heavy parts and ergonomic chairs that provide extra back support.

Other German companies have pursued similar strategies. In 2011, BMW opened an assembly line at a factory where all the workers were over 50. The experimental plant featured workstations of adjustable height and less-rigid wooden floors to reduce joint strain.

Germany’s proposed pension changes also fly in the face of reforms in other industrialised nations to raise the age of eligibility for state pensions in response to rising longevity.

The Organisation for Economic Cooperation and Development noted last year that most of its 34 members will have a state pension age of 67 by 2050 and some plan to keep raising that bar as longevity rises further still.

But for Germany – as with some of the world’s other wealthy nations, such as Japan – the challenge is not just the cost of pensions, it is also about the shrinking pool of potential workers who will be around in years to come to pay for their retirement.

Germany’s working-age population is expected to fall 7 per cent by 2025, according to projections from the United Nations Population Division, in part because German women have been having too few babies for more than 40 years.

Back at Deutsche Bahn, Mr Brockmann’s younger co-workers have started to make the occasional exception for him.

“When we work on high voltage systems, and have to climb up high, my colleagues say: ‘we’ll go up – you don’t have to.’”

– FT