Germany: Deindustrialization to Hit the Labor Market with Full Force

Streamlining of production processes and resorting to part-time as opposed to full-time jobs are methods that have been massively used in German industry over the past years. In the automobile sector, for instance, total employment was 42,000 jobs less in 2023 than in 2018, when it was 822,000. But these were gradual shifts over several years.

Today, deindustrialization has hit the German economy big time, with major companies announcing at least 55,000 layoffs by the end of 2024, which will be accompanied by 4-5 times that many in the supply sector – mainly made up of medium-sized companies. Last week, the cases of ThyssenKrupp Steel and Volkswagen were in the headlines, with warnings of plans to reduce expenses drastically, although by as yet unspecified amounts. These are the leading German companies in the steel and automotive sectors.

The leading suppliers like Continental, Bosch and Scheffler will be affected, as well as several thousand smaller suppliers. ING Bank chief economist Carsten Brzeski was quoted in the press as forecasting “death by a thousand cuts” for the labor market. A survey of 50 suppliers to industry conducted by management consultants Horvath found that 60% of the companies intend to reduce their German workforce over the next five years. In addition, large companies are considering producing abroad and cutting well-paid qualified jobs at their German sites. Those positions will be gone forever. Focus magazine quotes Holger Schäfer of the German Economic Institute (IW) in Cologne: “If a chemical plant closes down in Germany, it won’t come back.”

The crisis is due in large part to the combined effects of “green” pipe-dream policies: higher energy costs as a result of shunning Russian natural gas to replace it by 3-4 times more expensive LNG from the United States; the European Commission’s ban on production processes with high CO2 emissions, including forcing the auto industry to replace combustion engines by electric engines; the illusion of “green steel” using solar and wind power as energy sources, etc.

Among car makers, Volkswagen in particular has invested heavily in the production of e-cars, sales of which collapsed by 69% in the first seven months of 2024, compared to the same period in 2023. Among the reasons, the uncertainty over battery-recharging stations and an end to the premium paid to purchasers. Altogether, Volkswagen has so far sold 500,000 cars less than the year before.

The crisis in the steel sector has to do predominantly with the collapse of housing construction, the nose-dive of e-car sales, and years of non-investment in railway and highway infrastructure. But the German government’s obsession with transitioning to “green steel”, using expensive “green hydrogen” instead of coke, has put additional pressure on ThyssenKrupp. The government’s pledge to co-fund the transition with €2 billion still leaves a gap of at least €8 bn to fill. Drastic cuts in production and in the current 27,000 jobs seem to be pre-programmed.