The Demographic Challenges of Germany and Theit Impact on Economy - Case Study Example

The demographic challenges of Germany The demographic challenges of Germany Introduction The shrinking and the aging of the population of Germany remain to be one of the greatest demographic challenges facing the country. With the lowest fertility rates (1.4 per lady) and highest life expectancy rate (80 years) in all of Europe, this promises to be the main the concern for the labor market in the coming decades. The average fertility rate considered sufficient to maintain stable levels of the population is approximately 2.1 children per woman. The German economy is also known for the characteristic significance that the small and medium enterprises, SMEs, contribute. They represent approximately99.6% of all German companies, employing nearly 60.2% of the German workforce and helping generate 51.8% of the country’s GDP. The SMEs also represented 10% of all the export companies, which are the backbone of the German economy and helped establish Germany as the fourth largest economy in the world. The SMEs represent what German firms are famous for, innovation rather than price and competitiveness based on quality. It is these companies that have seen German products being recognized for their high standards and quality. Analysis of the problem The population decline in Germany is not a new phenomenon at all; in fact it has been long in coming. In Germany, large families began to go out of fashion during the West Germany era in the 1970s. During this time, the country prospered as the economy improved and the fertility rate began to drop to about 1.4 children per woman. The fertility rate has since then stagnated and pretty much stayed there. All this time it has been far below the rate of 2.1 children that is needed to maintain a stable population. Germany had a sizeable proportion of their population (50 million) between the 20 and 65years age bracket as of 2010. Official statistics predicts that this is going to significantly change with time as the population of this age bracket is expected to decline to below 36million by the year 2060 (Berghahn, 2005). More than 50% of the entire German population at this time is expected to be older than 51. The case seems will be the same in a few other European countries. There is little doubt of a population crisis for Europe in the years to come. Several recent studies have shown that the historically high unemployment rates, more than 50 percent, among youths in places such as Spain, Greece and Italy are discouraging the young people from having many children. According to a European Union report, the total number of live births among the European nations fell by 3.5 percent from 5.6million to 5.4 million, between the year 2008 and 2011. The figure, when compared to about 7.5 million children in 1960 born in the same region, helps understand the problem. As mentioned the low fertility rate combined with the high life expectancy will definitely bring about a decline in the total national population as well as aging the population quite significantly. The total German population is expected to decrease to 65 million from the present 82million by mid-century (Hummel, 2007). The result of this will be a definite change in the structure of its labor force. Making proper use of the older workers is, as a result, necessary and of paramount importance in Germany. The potential of the older workers in such an economy is enormous, coupled with this is the experience, the wide range of abilities and skills that lies with the aging. As such the government has gone ahead to increase the retirement age as it makes more sense for those extra years spent working as opposed to retirement. The population demographic sets in motion a set of challenges that the German government has to address. Chief among this is the need to maintain the high rates of labor productivity that has been an important pillar in strengthening the German economy. Secondly, the government has to make the necessary modifications to the pension and social security systems to accommodate the large size of the retiring population. As a result, there exists an old-age dependency ratio, which is a characteristic of an aging population. Another challenge that Germany seems to be facing is the fact even though immigrants would play a crucial role in helping fix the problem, the nation is not known to be particularly attractive as an immigration destination. The demographic changes in Europe’s biggest economy will definitely bring along some economic hitches as well. Germany is expected to lose its surplus in trade that it currently has by 2030 (Lee & Mason, 2011). Decreased exports brought about by the lower productivity coupled with growing imports by the people in the retiring age bracket will be some of the major reasons for this. It s however expected that the German GDP per capita would increase as a result of the decline in the population. Solutions Attracting immigrants can help to mitigate the effects of an aging population in the short term. Attracting skilled workers into Germany is viewed as a national imperative. With the aging of the native population and shrinking of the numbers in the workforce, it is critical to find new workers (Scott, 2008). The new workers will help to maintain and fund the social service programs and retirement that is provided by the government. However, this cannot change the decline in the population in the long term. Even if Germany managed to get an average of about 200,000 workers every year, its population would still be expected to decline in the next half century. Coupled with the arrival of a massive wave of immigrants is the risk of generating unseen social unrest in the domestic population. The German small and medium-sized enterprises (SMEs) or better referred to as the “Mittelstand” companies are known by many to be the secret driving force behind German’s success in business. The “Mittelstand” groups are considered to account for well over 50 percent of the jobs in the country and 52 percent of Germany’s economic output (Siebert, 2005). These companies also account for almost two-thirds in manufacturing and industrial fields. It is also in these companies that a shortage of qualified employees is having the biggest effect as it costs these companies approximately 31 billion euros in lost annual revenue. It, therefore, goes to show that it is at the level of the SMEs that the greatest effect of the shrinking labor force is being felt. As such this is the best place where some radical changes would apply. Germany has a bad reputation with regards to the treatment of immigrants as compared to her other European neighbors like France and Britain. The bad reputation tends to make Germany unattractive to immigrants yet the nation’s economic superiority in the world will depend on the influx of immigrant workers over the coming years. It is, therefore, necessary to address these concerns especially at the levels of the small companies and improve the perception that immigrants would tend to have towards Germany. As Kai observed, the SMEs have to adopt some radical measures to appeal to the foreigners since immigrants have no problems with working for the larger companies. As a matter of fact, they prefer the larger companies over the small ones. Coupled with this is the fact that it is the smaller companies that are most affected by the decline in the labor force. The good thing about a small company, however, is that it is here that you can drive or initiate some real changes. To many people, the larger companies are more important, but the truth of the matter is that SMEs have always been the secret behind the big economies. They also tend to have a much larger total workforce as compared to the larger companies and can drive changes more profoundly and quickly than the larger companies. The smaller the company, the more important the managers and especially the boss are as a role model for everyone else. The smaller the company, the more the employees tend to orientate themselves to the behavior and attitude of the boss. As Kai observed, if the boss makes funny jokes about women, foreigners or if he discriminates against some people, it then becomes more acceptable and everybody else follows that example. It is as Kai observed a bit like in a family where the children follow the example set by their parents. Issues with regards to the unfair treatment of immigrants ought to be dealt with at this level. Increasing the diversity of the management is one of the steps that the SMEs can take to fix the problem (Smith, 2015). Such an initiative would work only if the managers participate fully. In the case of Teckentrup, Kai took a pragmatic approach to diversity in management. He initiated schemes that sought to entice more of their workers that had a migration background to improve and better their German language skills. He also appreciated the diverse religious nature of his workforce especially from the migrant workers and set up guidelines that would help them feel recognized and appreciated. The good thing about a small company is if the boss sets such a tone, everyone else soon follows and in no time the migrant workers or those with a migration background feel appreciated and recognized. Without a doubt, their esteem and productivity will also rise. The adoption of such successful diversity programs by the SMEs would go a long way in helping the German society become receptive and attractive to immigrants. It is up to the leadership of the SMEs to broaden the understanding and appreciation of the value of diversity throughout their company. It is true to say that the future of SMEs in Germany largely depends on the initiatives that the leadership will take towards improving diversity management. Recommendations According to accepted wisdom amongst many of the German leaders, immigration would be an appropriate remedy for the rapidly declining and aging population. However, it is worth noting that the with fertility rates that low, the unpalatable truth is that this is a mathematical impossibility. Immigration cannot come close to making up the difference. To offset a low fertility rate by immigration mechanisms alone while targeting to keep the population figures constant to today is not realistic. In particular, German’s population is aging; this is primarily driven by the low fertility and cannot be compensated by immigration alone. It would require a continuous massive immigration of people into Germany y the millions. Germany would need some 261 million net immigrants over the next 90 years so as to stabilize the current old-age dependency ratio (Berghahn, 2005). At the current levels of fertility, the population of Germany would have to increase to approximately 490 million through immigration so as to prevent further aging in the population. Unlike her neighbors, Germany can afford to spend an awful lot of money trying to encourage immigrants from other nations or in encouraging people to have more children. Unfortunately though, throwing money at a problem has never fixed a problem. Throwing money at people so as to have more children will never work. The German culture particularly has certain attitudes and policies that treats parenthood towards women and discourages them from combining work and children (Hummel, 2007). Forcing the ladies to choose between one or the other. Setting up mechanisms that would address such cultural concerns combined with favorable incentives and the fair treatment of immigrants would be a far much effective approach. Of course, people have a right to decide on the number of children that they wish to have, as many – or as few – as they would want. It is a basic human right, an individual choice that is entirely undisputed the world over. However, there is also a fundamental dynamic nature of fertility that regards to the long-term sustainability and viability of a culture, society and economy (Lee & Mason, 2011). Fall out Though spending about $265 billion every year on family subsidies, Germany has yet to realize and meaningful benefits from this and has served as prove of just how hard it can be to effect change. In part, the solution lies in the remaking of values, attitudes and customs in the country. The culture in which working women with children considered as “raven mothers,” implying neglectfulness and the troubled history of accepting immigrants has only served to worsen the situation (Berghahn, 2005). Critics argue that the nation has not accomplished much by throwing money at families in a system of a tax break for married couples and other benefits that includes tax breaks and allowances for stay-at-home mothers and children. Throwing money at people so as to have more children will never work. Especially if the entire culture is one of a delayed age for settling down and marrying, small families and where the natives lead more atomized with less familiar existences. There is, however, some merit in trying to reduce the financial burden for some of the people who may be thinking about having some children of their own. However, if all that people see is all their friends having one or at most two children, worse still if they come from a family of two or one children. It is then most likely that when their time comes, they will have no more than two children themselves. A short term solution can be found by employing more of the older workers who will be hitting their 60s and 70s (Hummel, 2007). Keeping more elderly people in employment also helps to reduce the cost of the graying population thereby making the pension scheme more manageable. The German government has already effected this by increasing the retirement age from 65 to 67 years. Another short term solution can be found by encouraging more immigrants into the country. Conclusion Policies such as those being implemented by the Teckentrup group that seek to improve the diversity in management can also be adopted by other small and medium sized enterprises (SMEs). Such SMEs would become more attractive to the immigrants with time. Other initiatives would include encouraging the assimilation of the immigrants into the German mainstream culture, as Kai was attempting to do. Kai did this by ensuring that the immigrants are conversant with the German language among other things. Such initiatives will go a long way in helping make the immigrants and their descendants feel more appreciated and at home away from their native home. As Kai had proposed, the future health of his and of other SMEs lies on improving the relations with the immigrants and on improving diversity in the management. In the long run, these approaches will not fix the problem alone. A combination of these methods should work with a cultural transformation mechanism that would seek to change the views and misconceptions among the German people with regards towards marriage and having children. References Apt, W. Germanys new security demographics. Berghahn, V. (2005). Imperial Germany, 1871-1918. New York: Berghahn Books. Horne, W., & Pavlović, Z. (2007). Germany. New York: Chelsea House. Hummel, D. (2007). Population decline and infrastructure: The case of the German water supply system. Vienna Yearbook Of Population Research, 2007, 167-191. doi:10.1553/populationyearbook2007s167 Lee, R., & Mason, A. (2011). Population aging and the generational economy. Cheltenham, Glos, UK: Edward Elgar. Mody, A. Germany in an interconnected world economy. Scott, T. (2008). Ecology, Economy and State Formation in Early Modern Germany. German History, 26(3), 439-439. doi:10.1093/gerhis/ghn032 Siebert, H. (2005). The German economy. Princeton, N.J.: Princeton University Press. Smith, W. (2015). The Challenges of Globalization: Economy and Politics in Germany, 1860-1914. German History. doi:10.1093/gerhis/ghv055 Highlight: Germany. (2008). Njobs. doi:10.1038/nj0238 Read More