The Demographic Time Bomb
The cyclical downturn is temporary. The demographics are not.
The baby-boomer generation is leaving the workforce between 2025 and 2036. The largest cohort, born in 1964, numbered nearly 1.36 million births. By 2039, 13.4 million workers will have reached retirement age — 31 percent of everyone currently employed.
The arithmetic is straightforward. Between 2022 and 2030, 11.5 million people will retire while only 6.8 million enter the labour market. That leaves a net gap of around 5 million. The IAB projects that the labour force potential will start declining in 2026. By 2035, without countermeasures, it could shrink by as much as 7 million.
The Labour Force Potential
Source: IAB labour force projection, in millions
Specific to Engineering
One in five working engineers in Germany is over 55. By 2035, according to VDI and IW, roughly 200,000 additional engineers and IT professionals will be needed just to cover retirements and the growing demand from digitalisation and the energy transition. Set against that: just 90,000 to 100,000 young engineers graduating in Germany each year.
Without countermeasures, the gap between demand and supply will widen faster from 2026 onward. That is the core of the problem: this is not a demand effect that vanishes with the next recovery. It is a supply effect that gets worse every year.
What It Costs
The VDI estimates the annual loss in value creation from unfilled engineering positions at up to 13 billion euros. Extrapolated to the full skills gap across all qualification levels, the IW Cologne institute puts the figure at 49 billion euros per year — 1.1 percent of GDP. Per unfilled position in a shortage occupation, that averages out to 29,000 euros in lost output.
Demographics cannot be solved by waiting. They are the reason the gap comes back larger, not smaller, after the recession.
Back to the report overview.
Next chapter: Eastern Europe Under Pressure.