Germany's labor market: Is there a Mindshift in Management?

In a time of upheaval and transformation, the German labour market presents companies with new and complex challenges. The transition to a labour market characterised by a shortage of skilled workers and demographic change requires a rethink of management strategies. This article highlights the current trends and challenges in the German labour market and looks at the importance of a management mindshift to thrive in this dynamic environment. We dive deeper into the factors influencing today's labour market and discuss how modern management and HR strategies need to respond.

The current situation on the German labour market

The German labour market has been in a state of upheaval for some time now. We are undergoing a transformation to a labour market in which companies have to compete for professionals - commonly referred to as the skills shortage. In addition, a challenging demographic change awaits us when the baby boomers retire: By 2040, around 8.7 million more workers will leave the labour market than enter it. This ensures that Germany follows Japan's trend of an ageing population. And if that's not enough, new jobs will require higher qualifications, which will necessitate continuous advanced training. This is anything but rosy. Detlef Scheele, former head of the Federal Employment Agency, spoke to WirtschaftsWoche magazine about how we can nevertheless overcome this situation:

"In order to meet the demand for skilled labour in the long term, we need to make several adjustments. [...] Firstly, we need to fully utilise the existing potential in the country. To do this, we need to create better framework conditions so that women can extend their working hours, young people can successfully start an apprenticeship after leaving school and older people can also work until retirement age - as far as their health allows - and inclusion is practised even more.
However, even if we utilise the entire domestic workforce, this will not be enough to close the skills gap. Immigration is therefore important in order to attract more professionals and thus counter the consequences of demographic change."

In our case, this means 450,000 immigrants – each year. Our current head of the labour agency, Andrea Nahles, is currently talking about 400,000.

In summary, the latest data from the German labour market shows that there is still a long way to go. However, a change in the minds of management could be a sign that employers are beginning to recognise the need to adapt to the transformed labour market and offer their employees more secure and stable employment opportunities. The question is therefore ...

Has the mindshift arrived in management?

In principle, the German labour market is undergoing a fundamental change in the way management approaches its employees. The figures speak for themselves (see Fig. 1 below). Currently (October 2023), the total number has fallen to 748,665 from the absolute peak in August 2022 with 886,724 job vacancies.

(Fig. 1: Total number of job vacancies registered with the BA in Germany from January 2022 to October 2023, Statista)

(Fig. 2: IT skills gap in Germany, bitkom)

According to Bitkom (as of Nov. 2022, see Fig. 2), there is a shortage of 137,000 jobs in IT. And an unfilled position is expensive and costs up to 73,000 euros, as our colleagues at alphacoders have already discovered. Everyone understands these figures, especially management.
A new management approach encourages top management to focus on the individual needs of their employees and not just the bottom line. This means that leaders now consider the personal and professional development of their employees as well as their overall well-being. So this is about a positive employee experience and employee wellbeing. This shift in thinking has led to better collaboration between leaders and employees, which in turn has led to better communication and more trust.
The new management approach has also led to greater flexibility in the workplace. The C-level is now more open to allowing their employees to work remotely or on flexible schedules, which has led to increased job satisfaction and productivity. This is because these issues are at the top of the wish list of amenities: more flexibility, remote work and work-life balance.

The shortage of skilled labour is followed by a shortage of executives

Leaders are also becoming scarce, as they are subject to the same demographic and specific challenges of the domestic labour market. In addition, the next generation thinks differently than the baby boomers or Generation X.
There is a changed understanding of values here. A total of 87% of German millennials say no to the question of management responsibility. Internationally, the average is 78%. The younger generations value things such as doing meaningful work, as well as the generally required flexibility and work-life balance.

Furthermore, the demands on leaders have increased. In a modern working environment, pure expertise and professional experience are no longer enough to lead teams and organisations effectively. Instead, there is a stronger focus on soft skills and adequate value management. A meta-study by IFIZD identified the three most important soft skills for management in the modern workplace:

  • Communication skills (57%): The ability to communicate clearly and effectively is critical to leading teams and organisations.
  • Ability to change (39%): This competency includes the ability to adapt to rapidly transforming work environments and technologies.
  • Appreciation & orientation towards employees (33%): This includes respecting and valuing employees:inside, which is crucial for a positive work atmosphere and employee motivation.

In order to meet these increased demands, companies should define measurable requirements for management positions, establish feedback mechanisms, relieve leaders of everyday tasks and provide coaching and counselling services. It is also important to overcome ingrained ideas and stereotypes and create inspiring role models. But instead, here's what's happening in German boardrooms ...

Why leaders scare away young talent

The German labour market is undergoing unabated digital change and many companies are looking for young talent with digital skills. However, many leaders are struggling to keep up with the pace of change, leading to a gap between the older generation of leaders and the younger generation of digital natives.

However, despite the general shortage of skilled labour and companies' efforts to address it, their own leaders often contribute to exacerbating the problem. This is because they sometimes feel threatened by young, qualified junior staff and act selfishly by deliberately scaring them away.
Arbeits-abc says that many leaders in German companies have narcissistic or psychopathic traits, which leads them to pursue only their own good and eliminate "dangerous competition". Unfortunately, there is a lack of clear evidence here. Nevertheless, it is a primal human trait to protect oneself, so this is not a far-fetched thought - and the air at the top is notoriously thin. This discrepancy causes many young leaders to feel intimidated and unwelcome in the workplace, leading to a lack of motivation, a slowdown in a career in management or possibly even a departure.
The first step is for current leaders to feel secure in their position. And now that we've learnt that new leaders need to bring an expanded "skill set" of skills (something Gen Y and Z fundamentally lack), current management can also fundamentally relax. In fact, we have a great opportunity here for "the young to learn from the old" – and vice versa.

So the key to bridging this gap continues to be for leaders to understand the needs of the younger generation and create an environment that fosters their growth and development. This means providing them with the necessary resources and support to help them succeed and creating an atmosphere of trust and respect. In this way, leaders can ensure that young talent feels valued and recognised and that they are given the opportunity to reach their full potential.

New leadership as transformational leadership style

This idea is also supported by Heike Bruch, Professor of Business Administration at the University of St. Gallen, who specialises in research topics relating to leadership, energy and engagement. She observes that traditional hierarchical leadership styles are being replaced by a transformational approach in response to the shortage of professionals and the need to remain attractive to them.
At the centre of the transformational leadership style is the identification of employees with their work and the emphasis on the meaning of their work. However, although there is a lot of talk about transformational leadership, it is not yet widespread in practice. Only 13% of companies in German-speaking countries follow this approach.

"We have many companies in which individual leaders act in a transformational way. But it's not very well established as a management culture."

And therein lies the challenge: the transition to a new leadership style is a lengthy and courageous process that must be supported by the entire company management. Even charismatic leaders can cause problems if employees feel overwhelmed or have the feeling that they are no longer on an equal footing. Elon Musk is such a case.
The focus should therefore be on creating a new climate in the company rather than on individual charismatic leaders or "shining lights". This climate lays the foundation for a working environment that motivates and retains employees.

Employer branding in the context of the employee market

In light of the mindshift in management discussed in the previous chapter and the increasing focus on employee needs, employer branding naturally plays a crucial role for companies in the current labour market. Employer branding, once introduced as an innovative concept in the late 1990s, has become a fundamental part of HR strategy in an employee-dominated market.

It addresses two core areas in an employee market:

  • External branding: The aim here is to present the company as an attractive employer in order to attract new employees. This is achieved through various marketing measures aimed at potential candidates.
  • Internal branding: Retaining existing employees is just as important as recruiting new ones. Employer branding starts here to promote employee loyalty and increase employee satisfaction and productivity.

Practical realisation in the current context

  • Focused communication: Corporate values and culture should be communicated both externally and internally. It is important to maintain authenticity and consistency in order to create a credible and appealing corporate brand.
  • Employees as ambassadors: Involving current employees in the employer branding strategy is essential. They are the best ambassadors for the brand and contribute significantly to credibility and authenticity.

Remembering the long-term effect

Although its presence is well known, the importance of employer branding should not be underestimated. It is a long-term commitment that requires continuous maintenance and adaptation in order to remain relevant in the dynamic labour market. In times of skills and leadership shortages, it is clear how valuable a well-established employer brand can be - both for attracting new talent and for motivating and retaining the existing workforce. Furthermore, organisations can position themselves successfully in a dynamic and highly competitive environment.

Conclusion

In summary, the German labour market needs a change in management awareness to alleviate the acute shortage of specialists and leaders. A new management style focussing on collaboration, trust and respect will help to create a more attractive working environment. Modern management styles attract and retain young talent. Employer branding is also more relevant than ever, as it can help to create a positive image of the organisation and its culture. With these measures, companies can ensure that they remain competitive in the market and secure their long-term success. And we have now also reached a point where these things are no longer "nice-to-have", but must be anchored in every corporate strategy.

Contact us now