Better Workers, Please

Everyone knows germany suffers from high unemployment. Those on the dole are desperate to get off, but no jobs are to be had. Right? Well, not so fast. Why has little-known Rücker, an auto and aerospace design firm in Wiesbaden, set up shop in Romania? Not because wage costs are lower, managers explain, but because it's the only place it can find the engineers it needs. Why does a world leader such as Bornemann, a manufacturer of offshore oil-drilling equipment near Hanover, have a list of 20 job openings it can't fill and a backlog of orders stretching well into 2007? "Forget bureaucracy, taxes or wage costs," says CEO Ingo Bretthauer. "Our biggest bottleneck for growth is the lack of qualified workers."

Forget conventional wisdom, too. Germany is creating plenty of jobs, thank you--just not the right kind of workers. Competitive champions like Bornemann drive what German commentators are calling a "new economic miracle." They are the backbone of export-driven growth that lately has lifted the onetime "sick man of Europe" and set it back on track for economic recovery. After half a decade of malaise, growth recently hit an annualized 3 percent and unemployment dipped below 4 million--the magic threshold last seen in 2001. Indeed, German companies are adding jobs at the fastest clip since the dot-com era--more than 300,000 in 2006 alone.

And they're still hiring: BMW is add-ing 2,000 jobs, Lufthansa, 2,400, temp agency Adecco, 10,000. But, like Bornemann, many can't find workers fast enough, or even at all. Last week the Federation of German Engineers reported that manufacturers--the all-important lifeblood of the German economy--are desperate to fill 22,000 engineering jobs, up from 18,000 in April. The shortage is expected to rise to 25,000 next year, worries Federation president Eike Lehmann. Each of those jobs, he says, could be creating at least two more among suppliers and services. Not to mention billions in forgone growth and revenue.

How to explain the paradox? As anywhere, educated and well-trained workers in Germany have little trouble finding and keeping jobs. However, the vast majority of the jobless--about 80 percent, according to the OECD--are increasingly shut out of the country's nascent economic boom. That's because they're untrained, have dropped out of school or are long-term unemployed whose skills are no longer needed. Boom or not, union-mandated minimum wages mean many of these low-productivity workers remain too expensive for German employers. In sectors where low-wage jobs do exist, the jobless often make more money collecting welfare checks--and would be stupid to exchange those for a job. "Other countries have solved the problem with wage flexibility and low-wage subsidies like the U.S. Earned Income Tax Credit," says Michael Burda, labor-market expert at Humboldt University in Berlin. "Germany's labor market discriminates against them."

If Germany's official system makes the unemployed stay unemployed, companies themselves are getting creative. Companies such as Siemens, for instance, have introduced American-style recruiting at universities and trade schools--unheard-of in Germany until recently. In Nuremberg, the company's Automation and Design unit partners with high schools to nudge more kids into the sciences--and get them to bond with Siemens early on. At Bornemann, Brett-hauer says he's now planning to go to places like Russia to recruit. Others follow the example of software giant SAP, which has expanded development centers in India and Eastern Europe to meet a shortage of software engineers.

Unfortunately, German politicians seem blind to the handwriting on the wall. Thanks partly to the good economic times, Chancellor Angela Merkel has all but shelved promised changes in labor laws and wage bargaining, in the face of a threatened veto by her Social Democratic coalition partners and the increasingly vocal left wing of her own conservative party. Reforming the country's underperforming schools and universities--where the number of graduates in several key engineering disciplines has actually declined in recent years--has still not gone beyond the first baby steps. "The great danger is that our politicians lean back and do nothing" in the hope that economic growth will melt away the problem, warns Holger Schäfer, a labor economist at Cologne's Institute for the German Economy. But as the economics of labor scarcity begin to bite more and more voraciously, that will prove to be a costly flight from reality.