Germany's Working-Age Population is Projected to Decline Rapidly

Germany’s working-age population has been buoyed over the last decade by migrants escaping regional conflicts. As this migrant wave ends and baby boomers retire over the next five years, the growth rate of Germany’s labor force will drop by more than in any other G7 country. This will put downward pressure on GDP per person because there will be fewer workers for each retiree. It will also lead to a combination of higher social security contributions and lower pensions, absent reforms. And a more elderly population will increase demand for healthcare services, drawing workers away from other industries. Labor shortages could also deter investment.

Greater immigration could be a powerful force to counter these factors. However, prospects for this are uncertain. 

Germany could also increase its labor supply by making it easier for women to extend their working hours. There are 2.3 million fewer women working than men, and women are five times more likely to work part-time. Expanding access to reliable childcare and reducing taxes for secondary earners in married couples could help close these gaps.

Another solution is to raise productivity, which has been dragged down by inadequate investment in public infrastructure. Public investment declined in the 1990s and, since then, has barely been enough to offset depreciation. This puts Germany near the bottom of advanced economies in public investment. Money that has been budgeted for investment is routinely underspent, often because of staff shortages in municipalities.