Crisis in Germany: The country's labor market is suffering
There are no more well-paid jobs in the industry, car giants such as VW, BMW and Mercedes are laying off their heads, and Volkswagen is talking about the first factory closures in Germany in the company's 87 year history.
Post-pandemic labor hoarding and tight worker protection rules mask worrisome changes in Germany's high-paying manufacturing job market. After hitting an all-time low of 4.9% in spring 2019, the unemployment rate in the eurozone's largest economy rose to 6%.
The country's vital 564 bn € car industry is struggling to survive the switch to battery-powered cars, which don't require as much complex engineering - or manpower - as petrol-powered ones. VW has announced that it plans to abandon the company's promise not to cut jobs until 2029. It is also considering closing factories in Germany, something that has never happened before in the company's 87-year history .
The domestic supplier network of car manufacturers has been strongly affected, 60% of them intend to reduce their workforce in Germany in the next five years. Continental, for example, the third largest supplier in Germany, decided to give up the auto parts sector and focus on tires. Continental is cutting thousands of jobs as it prepares to spin off its sensors and braking systems unit. Other industrial giants are negotiating with the unions for an as yet undeclared number of layoffs.
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VW, Germany's biggest carmaker's problems are not new, but they have intensified recently due to both rising production costs, a weaker domestic economy and intense competition from China.
The shock news from VW, along with negative news about other German industrial giants, has helped spread the idea that Germany's good times are over and that economic decline is inevitable. VW's announcement is surely a symptom of a more general malaise in German industry and less of an isolated case. In addition to the problems affecting the automotive sector, Germany also faces a permanent loss of production capacity in the energy-intensive industry as a result of the 2022 energy crisis caused by Russia's invasion of Ukraine.
As fierce competition from cheaper competitors continues to reduce Germany's share of profits in the global economy, worsening geopolitical issues - see tensions between the West, Russia and China - threaten to further reduce the globalization that Germany has benefited from full.
The world is changing.