(Reuters is running a series of stories this week on Europe’s
demographic time bomb, which countries are most at risk and
which are poised to flourish over the next generation.)

* German workforce set to shrink drastically in next decade

* Mittelstand firms who prop up economy fear skill shortage

* Easier for big firms to recruit abroad, keep older workers

By Georgina Prodhan and Michael Nienaber

SCHILTACH/BERLIN, Dec 1 (Reuters) – German bathroom fittings
maker Hansgrohe is a successful firm with a track record of
global exports and an attractive profit-sharing scheme. But it’s
struggling to hire highly-qualified engineers – and many more
“Mittelstand” companies are too.

The raft of firms named after their small-to-medium size
kept Germany afloat throughout a global economic downturn and
still have healthy order books. But now they must brace for a
blow to their business from a demographic time bomb.

The working-age population of Germany – Europe’s biggest
economy – is expected to shrink by 6.3 million by 2030 as the
country’s overall population dwindles from 82 million to 65-70
million by 2060.

Policymakers are warning of a looming shortage of skills
that the Cologne-based IW institute has estimated is already
costing 22 billion euros ($27 billion) a year.

There is a particular deficit of workers with adequate
qualifications in maths, computing, science and technology. And
there is little slack in the form of unemployed people or
part-timers willing to work more: Unemployment is at a record
low 6.6 percent and the underutilised labour rate of 9.3 percent
is the lowest in the euro zone, according to Eurostat.

For now, German multinationals can compensate by luring
talent from abroad and adjusting working conditions to retain
older staff. But the millions of “Mittelstand” companies who
employ six out of 10 German workers and often have their
headquarters in rural settings are finding it hard to compete.

“Twenty years ago, an employee had to apply to a company,
but today I have to compete for potential staff and show them
what I can offer,” said Hansgrohe’s human resources chief Thomas
Egenter.

At its headquarters in the quiet Black Forest town of
Schiltach the firm – owned by U.S. company Masco and a
branch of the Grohe family – offers perks like childcare, a
share in profits and free transport to work from towns around
the region.

“You have to turn a lot of screws to be able to deal with
this demographic change,” Egenter said. “We’re not waiting until
it becomes a problem.”

For a series of graphics on Europe’s ageing problem, click
here:

here

POLITICAL RESPONSE

The population shift will be a major problem by 2060, when
there will only be 1.3 workers per retiree, against 2.3 now.

Meanwhile, the country’s birth rate is the lowest in Europe.

“The political response to the demographic challenge will…
be decisive in determining whether the German economy can retain
its leading position in many areas,” Jens Weidmann, president of
the Bundesbank (central bank), said recently.

But politicians can’t openly urge Germans to increase the
birth rate – it’s taboo because of sensitivity about the Nazis’
“Mutterkreuz” medal for women who had four babies or more.

Instead, Angela Merkel, Germany’s conservative chancellor
since 2005, has offered benefits for parents and stay-at-home
mothers – which critics say keeps more women out of the
workforce – and increased kindergarten places.

To offset the burden on the pension system of an ageing
populace, Merkel also introduced a phased increase in the
retirement age to 67 in her first term – but then brought it
back down to 63 for some workers, under pressure from her
centre-left coalition partners.

Companies remain deeply concerned. An international PwC
survey of 2,400 family-owned firms found German companies were
more worried about attracting and retaining talent than their
foreign peers.

Without heavy immigration, “the German labour market will
overheat and labour supply will soon start to constrain overall
German growth,” wrote David Mackie, an economist at JP Morgan.

NO PANACEA

Some German firms are finding imaginative solutions.

Car maker BMW is retaining more workers aged 50 or
over – it expects them to make up more than 35 percent of its
workforce by 2020, from 25 percent at present – and says they
are “at least as productive” as younger workers. It has also
introduced practices in consideration of their health: Wooden
floors soften the impact on workers’ knees and staff rotate jobs
during shifts to avoid too many repetitive movements.

SAP, the biggest software player in Europe, is
hiring people with autism from around the world, believing that
their unique talents can give it a competitive edge.

And chemical giant BASF plans to hire its second
round of trainees in Tarragona, Spain.

But Germany’s population problem will still have to be
confronted, says SAP board member Stefan Ries.

“It is indisputable that this problem lies ahead,” said
Ries. “We see it with our industrial customers, in our
ecosystem. You see it much more clearly in the Mittelstand.”

Keeping the working-age population steady would need annual
net immigration of at least 300,000 until 2050, Stephan Sievert
of the Berlin Institute for Population and Development said. It
was 460,000 last year and could hit 500,000 this year, he said.

Like much of Europe, Germany is debating tougher controls on
immigration, though even the right-wing Alternative for Germany
(AfD), poaching votes from Merkel, values qualified immigrants.

However, initiatives like a “Blue Card” scheme for
highly-skilled workers and academics have a limited impact: only
18,000 have been granted since its introduction in 2012 and most
of the recipients were already living or studying in Germany.

Back in the Black Forest, Hansgrohe hired a young man from
Portugal last year and offered his fiancee a trainee engineer
post too. But settling them in and helping with red tape was a
“massive effort” for the firm.

“They’re doing a super job, no question, but it’s a lot of
work,” Egenter said. “It’s not a cure-all.”

(1 US dollar = 0.8022 euro)

(Additional reporting by Stephen Brown, Harro Ten Wolde,
Andreas Cremer and Ludwig Burger; Writing by Georgina Prodhan
and Stephen Brown; Editing by Sophie Walker)