Germany's Demographic Bust

The population is shrinking and German companies need talent, but the country has always had a strained relationship with immigrants.
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The population is shrinking and German companies need talent, but the country has always had a strained relationship with immigrants.
Heidelberg University is the oldest university of Germany. (PHOTO: JAN BECKENDORF/WIKIMEDIA COMMONS)

Heidelberg University is the oldest university of Germany. (PHOTO: JAN BECKENDORF/WIKIMEDIA COMMONS)

Germany is dying. Hey, don't shoot the messenger. Concerning demographic decline, only Japan ranks worse. The population is shrinking. German companies need talent. The uneasy relationship with immigrants:

Germany has long had a complex attitude to outsiders. As its economy boomed during the Wirtschaftswunder years in the 1950s and 1960s, it imported huge numbers of foreign workers from southern Europe and Turkey. Know as Gastarbeiter (guest workers), they were meant to be temporary, and no effort was made to integrate them. Yet most of them settled. Their offspring form the core of Germany’s large, and largely low-skilled, migrant community. In the 1990s Germany absorbed huge numbers of ethnic Germans from the east, particularly Russia, Ukraine, and Kazakhstan. The eastward expansion of the E.U., and the gradual removal of barriers to labor mobility, brought a surge of Poles, Romanians, and Bulgarians. As a result Germany already has the largest immigrant population in Europe. According to the latest census, just out, some 6.2m of its 80.2m inhabitants, or eight percent, are not German citizens, and several million more were born abroad.

But Germany has never thought of itself as an immigrant country. Until 2000 citizenship was mostly reserved for ethnic Germans. In recent years Gastarbeiter and their offspring have been able to apply for citizenship, but dual nationality is still barred to those over 23. For many years migration was tolerated, not encouraged. Newcomers were, on average, less skilled than Germans. For most of the past decade the net number of incomers has failed to make up for the falling number of native Germans, and the population as a whole has been shrinking.

... The new arrivals are younger and better educated than their predecessors. German newspapers are full of stories about “welfare migrants” sponging on the country’s generous social-security system, but they are overblown. Almost 70 percent of Romanian and Bulgarian migrants are highly qualified, often with university degrees, says Klaus Bade, a migration expert. Migrants from the Eurozone’s crisis countries, like Mr. Medina, are even more likely to be young and well educated.

Emphasis added. Forty years of importing labor—the demographics have changed dramatically over that time span. The better educated move to improve. The lower classes are stuck in the Eurozone periphery, where there is a similar aging workforce problem.

The better paying jobs are agglomerating in certain parts of Germany. The same economic geography afflicts the United States. Economist Enrico Moretti (a name I drop frequently) maps this divergence in his book, The New Geography of Jobs. Those armed with a college degree relocate to the smaller number of places doing well in the "Innovation Economy." As for the less fortunate, Moretti has the following prescription:

Differences in geographical mobility, coupled with increasing polarization among American cities, exacerbate income differences across education groups. Indeed, if the less educated people were more able and willing to move to cities with better job opportunities, the gap between college graduates and high school graduates would shrink.

Everyone should move to the Texas Triangle or Greater Greater New York City, regardless of educational attainment. Given that the rent is too damn high in much of the new geography of jobs, the advice is strange. According to Moretti, the Creative Class table scraps are worth it.

I'm not convinced. Those who do take their college degrees to the Big City talent refinery will struggle to patch together enough income to stay. Many of them are fighting over Creative Class table scraps to make ends meet, moonlighting as waitstaff at a trendy restaurant to augment the 9-to-5 unpaid internship. The wide-eyed high school graduate will also compete with immigrants running family-owned businesses. Labor is cheap, really cheap. Profit margins are cutthroat. Last, but not least, are the native born city dwellers with their impenetrable social networks. What's left in the labor market for a domestic newcomer lacking education? The middle class squeeze is on and even Paul Krugman isn't sure what to do about it.