Germany’s Labor Market: Increasingly Service-Oriented and Highly Skilled

Abstract

The German labor market has undergone profound changes over the last decades. For a long time, the debate on structural change focused on the shift from manufacturing industries to services. This Weekly Report highlights that labor market changes are attributable to three developments: In addition to structural change, i.e., sectoral shifts, key drivers are an occupational shift toward service-related activities (known as servitization) and the increasing demand for higher-skilled workers (known as skill-biased change). Based on administrative data for the years 1975 to 2017, it can be shown that only about two-thirds of the decline in employment in the manufacturing sector can be attributed to traditional structural change. A significant proportion is attributable to servitization and skill-biased change. Further, to capture labor market changes, a sectoral analysis alone is not enough. Concrete job profiles and skills, especially analytical and interactive abilities, are crucial. Labor market and continuing education policies should therefore have a greater orientation towards job profiles and regional conditions to accompany the transformation in a socially acceptable manner.