(de-news.net) – A recent report by the Institute of the German Economy (IW) indicates that Germany will have to deal with a labor shortage much more pronounced than previously anticipated. According to updated demographic projections, the population is declining, the workforce is contracting, and the population is aging more quickly. This has led to proposals for policies that would increase the labor supply through migration, increased labor force participation, and longer workdays.
According to the analysis by the employer-aligned institute, Germany is likely to face a substantially larger labor shortage over the coming decade than had previously been expected. The IW now forecasts a deficit of approximately 4.3 million workers by 2036, representing an increase of around 1.3 million compared with its projection from two years earlier. This upward revision reflects updated population estimates produced by the Federal Statistical Office, which point to a less favorable long-term demographic trajectory than earlier assumptions suggested. Under the revised calculations, Germany’s population is expected to decline to roughly 81.1 million by 2045, equivalent to a decrease of 2.9%. Earlier forecasts, by contrast, had anticipated modest population growth. In assessing the causes of the deteriorating labor-market outlook, IW links the projected shortfall in part to migration trends while also arguing that Germany’s prolonged economic weakness and increasing labor-market challenges have reduced the country’s attractiveness to skilled foreign workers.
Labor force set to shrink sharply as population ages
The imbalance between workers leaving the labor market and those entering it is expected to widen considerably as large cohorts of baby boomers move into retirement. Against this demographic backdrop, only 9.8 million individuals are projected to reach working age by 2036. As a result, the overall labor force is expected to decline from approximately 55 million people in 2025 to about 51.2 million by 2036. The contraction is projected to continue beyond that point, with the labor force falling further to roughly 50.4 million by 2045. These figures underscore the extent to which demographic change is expected to affect the availability of labor over the medium and longer term.
The IW report argues that policymakers should adopt additional measures aimed at expanding the available labor supply. Among the strategies identified are stronger recruitment of foreign skilled professionals, greater participation by underutilized segments of the population—particularly women from immigrant backgrounds—and an increase in average working hours. Although Germany already exhibits a comparatively high rate of labor-force participation, the institute maintains that the number of hours worked per person annually remains low by international standards. In this context, IW contends that improving work incentives will be important. It further argues that reducing the burden of taxes and social-security contributions could encourage a significant share of full-time employees to extend their working hours, thereby helping to mitigate some of the projected labor shortages.
The findings are approximately consistent with broader demographic projections that point toward both population decline and population aging in the decades ahead. Official forecasts published at the end of 2025 indicate that, under moderate assumptions regarding fertility, life expectancy, and migration, Germany’s population could fall from now 83.6-83.9, as recent numbers suggest, to approximately 74.7–75 million by 2070. At the same time, according to the 2025 study, the retirement of the baby-boom generation is expected to result in a marked increase in the share of the population aged 67 and older. This demographic shift is projected to place additional pressure on pension systems while simultaneously reducing the relative size of the working-age population. Even under scenarios that assume substantial immigration, the long-term decline in the labor force is not expected to be fully offset, highlighting the structural nature of the demographic challenges identified in the projections.
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