Lessons in Engagement: Buoying the German Economy

The German economy has been stalled for five years and “recession” is on a lot of lips. There are a host of reasons -- COVID-19, supply chain problems, the war in Ukraine, the energy crisis as a result and inflation -- but one of the most intractable issues is Germany’s severe labor shortage. 

Indeed, the Federal Statistical Office reports that within the next 15 years, 12.9 million people will hit Germany’s statutory retirement age. That’s almost 30% of today’s labor market. Meanwhile, the ifo Institute is warning of a new low in the supply of skilled workers -- almost half of the companies in Germany are short workers -- forcing companies to decline business opportunities for lack of staff. The problems are especially acute in services and manufacturing, and they’re likely to become worse.

Not to sound pessimistic, but there is no easy or quick solution to any of this. German companies can’t drag baby boomers out of retirement, upskill millions of workers overnight, or insist people get jobs they don’t want. 

But they can become places where people want to work, thus motivating employees who are now choosing to leave the work market before they reach the statutory retirement age to stay on instead.

Granted, business leaders may think their organization has always been. After all, the German work ethic is the global standard and German manufacturing is synonymous with quality. But today’s severe labor shortage proves that the cultural, social, educational, and financial attributes that were, perhaps, taken for granted -- and that made Germany the economic engine of Europe -- are no longer sufficient. 

In short, what got Germany this far may not get it much further.

German businesses need to look at labor differently -- and that requires recognizing labor as human beings, not human resources. A great place to start is with their engagement.

Engagement in Germany

Employee engagement is a foundational component to achieving desired workplace outcomes. Gallup defines employee engagement as the involvement and enthusiasm of employees in both their work and workplace. Based on decades of research, we identified 12 needs that managers can meet to improve employees’ productivity – these 12 items are the core of Gallup’s Q¹² survey. Some items are practical, most are emotional, but together the 12 inspire workers’ enthusiasm, loyalty and will to contribute their best. And those inspired workers make their companies better in many important ways.

For instance, six in 10 engaged employees in Germany had an idea for improving their company in the last 12 months, compared with four in 10 actively disengaged employees. About half of the engaged employees report that their idea has been implemented. When asked whether their idea led to cost savings, increased revenue, or increased efficiency, nine in 10 engaged employees answered yes, compared with only seven in 10 actively disengaged employees. 

Though it’s difficult to fill job openings in this labor market and engaging an entire workforce is no easy task, engaging each employee is worth the effort.  When comparing employee engagement levels, Gallup found that top- and bottom-quartile business units had meaningful differences in desired business outcomes including absenteeism, turnover, accidents, productivity, and profitability. So, while the engaged can’t solve the labor shortage, they certainly reduce its impact with better work, greater productivity, and enormous cost savings -- plus substantial profitability. 

Moreover, cultures that support the prerequisites of agility are more likely to see more interdepartmental collaboration and quicker decision-making. They get more benefits from their technology, and their employees tend to learn from their errors rather than hide them to avoid punishment. This kind of culture speeds innovation, streamlines processes, and produces more work, faster. 

It should be noted that agility and engagement are two different things, but they have a common denominator -- the manager. 

Empowering Productive, Agile, Innovative and Engaged Workers

Managers are far more influential than they get credit for. Indeed, the conditions that engage employees are largely created by people managers. By individualizing for workers, playing to their strengths, and providing ongoing, focused feedback, managers can positively influence engagement every day -- but very few German managers know how to do any of that. 

Most managers achieved their position through seniority or success in a prior role. That affords them great expertise in processes, policies and in manufacturing machines -- which are valuable skills -- but not people management. And Gallup's latest measure of employee engagement in Germany found that 17% of workers are engaged. The majority are not engaged (69%) and 14% are actively disengaged -- workers who are not engaged do the minimum required at their jobs and are psychologically detached from it, a phenomenon the media has started to call “quiet quitting.” Most of the engaged, 77%, are not even looking for a new job. The same is true for 58% of those who are not engaged and 51% of the actively disengaged. 

The not engaged and actively disengaged may not seem like much of a loss. But many of them are highly trained experts, practitioners and professionals -- employees with crucial skills that are expensive and time-consuming to replace. Their disengagement costs their companies, but their loss would cost more. 

Maybe Germany’s sluggish economy isn’t the surprise -- it’s that the economy did as well as it did for so long. 

That is the little-recognized backdrop of today’s labor shortage -- just as strategies to expand the labor population get underway. 

For example, The Federal Statistical Office proposes recruiting more women into the workforce – Gallup’s research finds women are employed full-time for themselves or others at lower rates than men -- and some government agencies are focusing on Fachkräfteeinwanderungsgesetzes (FEG) reforms to facilitate recruiting skilled workers from abroad. 

Indeed, the Instituts für Arbeitsmarkt-und Berufsforschung of the German Federal Employment Agency estimates that Germany needs additional 400,000 workers every year to cover the gaps in the labor market due to an aging population. That may be the most efficient approach right now -- nearly 800,000 Ukrainian refugees have been recorded in Germany, says German Chancellor Olaf Scholz, and some percentage of them will be able to join the workforce. Their stay may be temporary, however, and last until peace prevails in their country again. 

More broadly, Germany’s immigration potential appears positive. When Gallup asks the world’s potential immigrants where they would like to go, Germany consistently ranks near the top. Seven percent of those seeking a new country want to come to Germany. That is half the amount that want to move to the U.S., but it still represents approximately 56 million people -- perhaps a surprisingly high amount, given the language barrier.

Gallup’s study also finds that most of these potential migrants to Germany are younger than the median age in Germany, and a significant share, one in five, have four years of postsecondary education. If everyone who wanted to move to Germany did, Germany’s youth population and college-educated population would grow exponentially. A targeted immigration strategy would likely improve these outcomes even further.

Given this context, current government strategies to increase the workforce will -- it is to be devoutly hoped -- enable German businesses to fill empty roles and fulfill customer needs. But recruiting millions of new workers into old ways of working is not an effective means of reigniting Germany’s economic might. To do that, Germany needs productive, agile, innovative and engaged workers. And it needs knowledgeable, skilled people managers to empower them. 

It can be done. Gallup's German clients are, on average, seeing three engaged employees for every one actively disengaged worker, compared with a ratio of 1-to-1 among the German employee population overall. Indeed, many German companies are highly engaged, highly agile, and highly profitable. 

They aren’t numerous enough to return the German economy to its prior high point. But their example of people powering profitability in tough times makes them role models for Germany. The sooner others follow, the better.