Germany's labor market in upheaval: The biggest transformation since industrialization
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Published on: October 17, 2025 / Updated on: October 17, 2025 – Author: Konrad Wolfenstein
Germany's labor market in upheaval: The biggest transformation since industrialization – Image: Xpert.Digital
When 10,000 industrial jobs disappear every month - and no one sees the opportunity in it
The shock: When an economic foundation crumbles
German industry is currently experiencing one of its most profound crises ever. More than 10,000 jobs are being lost every month, a trend that has been ongoing for years and with no end in sight. In 2024 alone, German industry cut 68,000 jobs; in the first quarter of 2025, the number had already reached 101,000 within a year, and in the second quarter, even 114,000. Since the pre-pandemic year of 2019, the number of employees has shrunk by almost 250,000, a decline of 4.3 percent. The situation is particularly dramatic in the automotive sector, where approximately 45,400 to 51,500 jobs were lost last year alone.
These figures paint a picture of an economy in transition, but they should not be misunderstood as doomsday scenarios. Rather, they mark the beginning of one of the greatest transformations Germany has experienced since industrialization. It is a phase in which old structures are giving way to new business models, innovative technologies, and future-proof jobs. The crucial question is not whether this change will come, but how we shape it.
The parallels to the historical transformation from the horse industry to automobiles are striking. Between 1915 and 1960, the American horse population declined from 25 to just 3 million animals, a decline of 88 percent. Entire professions disappeared overnight: teamsters, farriers, carriage builders, saddlers. But while 1 to 2 million direct jobs, and a maximum of 3 to 5 million including all indirect effects, were lost in the horse industry, the automobile industry created a net gain of 6.9 million jobs between 1910 and 1950, corresponding to 11 percent of the total US labor force in 1950.
Today, we are facing a similar, albeit even more dramatic, upheaval. Artificial intelligence, automation, and digitalization are not only changing the way we work, but also the professions themselves. Goldman Sachs estimates that AI could automate the equivalent of 300 million full-time jobs. In Germany, up to three million jobs could be affected by a fundamental change by 2030, corresponding to seven percent of total employment. By 2035, 1.3 million jobs are expected to be transformed or replaced by automation and AI-based technologies.
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The historical lessons: What the past reveals about our future
To understand the current transformation, it's worth looking back. Marginal employment, now known as mini-jobs, was introduced in the 1960s, when Germany was experiencing an acute labor shortage. The original target groups were explicitly employed people in their free time, non-working housewives, retirees, and school and university students. These groups formed the so-called labor market reserve, which was to be activated by increasing the attractiveness of marginal employment.
The modern form of mini-jobs emerged as a result of the Hartz reforms in 2003. The original concept was significantly expanded, and the earnings limit was raised from €325 to €400. Today, however, it is clear that this form of employment is causing structural problems. Of the approximately 4.4 to 4.5 million people who work exclusively in mini-jobs, which corresponds to approximately 11.4 percent of all employed people, many have no prospect of regular employment subject to social insurance contributions.
The Institute for Employment Research has demonstrated that mini-jobs systematically displace regular employment. In small businesses with fewer than ten employees, an additional mini-job replaces, on average, half a position subject to social insurance contributions. Extrapolated figures show that mini-jobs have displaced approximately 500,000 jobs subject to social insurance contributions in small businesses alone. Model calculations by the Bertelsmann Foundation show that a reform abolishing mini-jobs could increase gross domestic product by €7.2 billion by 2030 and create 165,000 additional jobs.
This historic development illustrates how political decisions can have unintended long-term consequences. While mini-jobs were originally intended as a flexible way to earn extra income for those already covered by social security, they have developed into a structural trap that displaces more productive jobs and weakens social security systems. The revenue losses for social security systems amounted to over three billion euros in 2014 alone.
The lesson from this development is clear: Short-term solutions to labor market problems can cause long-term structural damage if they are not regularly reviewed and adjusted. This is all the more true in times of fundamental technological upheaval, when the half-life of skills is rapidly declining and lifelong learning becomes a necessity.
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The Mechanisms of Change: How Technology and Society Interact
The current transformation is driven by several intertwined megatrends: digitalization, artificial intelligence, demographic change, climate protection, and globalization. These trends do not operate in isolation but reinforce each other, creating a complex web of challenges and opportunities.
The digitalization of the German economy is progressing, albeit at a slower pace than in some other industrialized nations. In 2025, information technology will generate revenue of €158.5 billion, an increase of 5.9 percent. Growth in the AI sector is particularly noteworthy: The AI platform business is growing rapidly by 43 percent to €2.3 billion. Cloud services are growing by 17 percent to €20 billion, and security software is increasing by 11 percent to €5.1 billion.
But despite all the euphoria surrounding new technologies, it should not be overlooked that their introduction will have a massive impact on the labor market. 27 percent of the hours currently worked in Europe could be automated by 2030, and in the US, the figure is as high as 30 percent. About two-thirds of all jobs are already exposed to some degree of AI automation.
Experts predict the greatest changes will come to office jobs in the administrative departments of companies and public institutions. More than half of the job changes caused by AI in Germany fall into this category. Customer service and sales follow with 17 percent, and production jobs account for 16 percent.
The speed of change is particularly dramatic. Between January and June 2025, 77,999 jobs in the technology sector were directly lost due to AI, equivalent to 491 people per day. Thirty percent of US companies have already replaced workers with AI tools like ChatGPT. More than 7.5 million data entry jobs will disappear by 2027.
The crucial difference from the historical transformation lies in the timing. While the horse-to-car transformation took place over decades and offered a seamless transition, the AI revolution is unfolding in years or even months. A carriage builder could become a car mechanic, a horse dealer a car salesman. But a data entry clerk can't simply become an AI engineer without years of retraining.
The current situation: Between crisis and new beginnings
The current situation in Germany is characterized by profound contradictions. On the one hand, industry is experiencing massive job losses, while on the other, many sectors are experiencing acute skilled labor shortages. Approximately 356,000 recipients of citizen's allowance worked exclusively in mini-jobs in July 2024, corresponding to approximately 43 percent of all employed citizen's allowance recipients. At the same time, thousands of positions in promising industries remain vacant due to a shortage of qualified specialists.
The Institute for Macroeconomics and Business Cycle Research sees this development as a clear sign of deindustrialization. German industry is under pressure due to geopolitical shifts. Russia has disappeared as a reliable energy supplier, and both China and the US want to strengthen their own industries. Jan Brorhilker of EY Germany warns: German industrial companies are currently under enormous pressure. Aggressive competitors, such as those from China, are driving down prices, important sales markets are weakening, demand in Europe is stagnating at a low level, and the entire US market is a major question mark.
But this crisis is also a catalyst for necessary change. Companies are being forced to rethink their business models, invest in new technologies, and train their employees. Forty-five percent of the companies surveyed plan to fundamentally redesign their business models with AI. Two-thirds are specifically looking for specialists with specific AI skills, and 77 percent plan to launch extensive retraining programs.
The digitalization of the German economy is progressing, even if it is progressing more slowly than hoped. In 2020, only 12 percent of companies used artificial intelligence in their operations, but by 2024, this figure had risen to 38 percent. Another third of respondents plan to use AI in the coming years, meaning that up to 70 percent of respondents see potential applications for artificial intelligence in their company.
Despite the challenges, it is clear that Germany has a strong industrial base, a highly qualified workforce, and a functioning vocational training system. Germany as an industrial location has often been declared dead, but thanks to its very strong foundation, it has repeatedly proven remarkably resilient. Employment in manufacturing at the end of 2024 was 3.5 percent, or 185,000 people, higher than in 2014.
Practice speaks: Two paths to the future
Two concrete examples illustrate how diverse the approach to transformation can be. The first example demonstrates the successful path, the second the dangers of waiting.
A medium-sized mechanical engineering company with approximately 350 employees recognized the need for fundamental changes as early as 2020. Instead of cutting jobs, management invested in a comprehensive training program. Every employee was given the opportunity to further their education in digital technologies. Older skilled workers were trained as digitalization pilots, combining their experience with new technical skills. Younger employees underwent intensive training in data analysis and AI-supported production planning.
The results of this proactive strategy were impressive. Within three years, the company managed to increase its revenue by 40 percent while maintaining a stable workforce. Productivity increased through intelligent automation and optimized processes. A crucial factor was management's realization that technology doesn't replace people, but rather enhances their skills. The investment in training amounted to approximately €2,500 per employee per year, which had paid for itself in just 18 months.
The second example demonstrates the consequences of waiting. A traditional retail company with 80 stores ignored the warning signs of digitalization for years. While competitors invested in e-commerce and digital customer loyalty, the company clung to tried-and-tested structures. Management argued that they had decades of experience and knew their customers. Training opportunities in the digital field were dismissed as unnecessary.
When the coronavirus pandemic struck in 2020, the business model collapsed within weeks. Without a functioning online shop, without digital customer communication, and without digital marketing skills, the company lost 60 percent of its revenue within 18 months. Of the original 1,200 employees, 850 had to be laid off. The remaining stores are now fighting for survival, while their competitors have long since embraced digital transformation.
These two examples illustrate a key insight: Transformation is not optional, and it rewards not those who wait, but those who act proactively. Companies that invest in their employees and actively shape change can not only survive but emerge from the crisis stronger.
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Closing the skills gap: retraining as a job machine
The dark side: structural problems and their solutions
The current transformation reveals deep-rooted structural problems in the German labor market that have been ignored or addressed with patchwork for decades. The mini-job system is just one example of misguided labor market policy, the negative effects of which are now clearly evident.
The mini-job model is proving to be a structural obstacle to Germany's economic development. It displaces more productive jobs, weakens social security systems, wastes human capital, and creates economically harmful incentive structures. Almost 40 percent of the workforce in small businesses works in mini-jobs, compared to only 10 percent in large companies. This distortion particularly weakens smaller businesses, which play a key role in the German economic structure.
The probability of losing a job is about twelve times higher for mini-jobbers than for employees subject to social insurance contributions. The high turnover rate of 63 percent compared to 29 percent for regular employees results in additional costs for recruitment and training. The coronavirus crisis demonstrated the vulnerability of this system particularly clearly: 870,000 mini-jobbers lost their jobs and fell directly into basic social security because they are not entitled to unemployment benefits.
Another structural problem is the skills gap. While the World Economic Forum predicts a net increase of 78 million jobs worldwide by 2030, while 92 million jobs will be eliminated due to automation, 170 million new ones are expected to be created. These figures sound reassuring, but they obscure a fundamental problem: 77 percent of new AI jobs require a master's degree. The gap between jobs disappearing and jobs created is much wider than in the automotive revolution.
The skills gap remains the biggest obstacle to transforming businesses in response to global macrotrends. Sixty-three percent of employers cite it as the main obstacle to future-proofing their operations. If the global workforce were represented by a group of 100 people, 59 people are expected to need reskilling or upskilling by 2030, and 11 of them are unlikely to receive it, equating to over 120 million workers at risk of unemployment in the medium term.
But there are solutions. International experience with the American Earned Income Tax Credit and the British Working Tax Credit shows that combined wage models can work. These systems have proven to be effective instruments for rewarding work and lifting people out of the poverty trap. Three-quarters of the payments actually reach households in need, and the work incentives are demonstrably positive.
A reform of the German mini-job system could introduce progressive social security contributions, replacing the current hard line between mini-jobs and employment subject to social security contributions with a gradual transition. Instead of the abrupt cutoff at the €556 threshold, a continuously increasing contribution rate would be introduced, starting at zero and gradually rising to the standard rate. This would eliminate the mini-job trap and create incentives for increasing hours without weakening the social security systems.
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Shaping the future: New markets and job profiles
While old jobs are disappearing, new career fields with enormous growth potential are emerging. The number of healthcare jobs is expected to increase by 26 percent by 2035, while teaching and training occupations will grow by 20 percent. Demographic change is driving demand in these fields, while technological advances are creating new specialized roles.
The field of renewable energies offers particularly promising prospects. According to the Federal Environment Agency, realized investments could create approximately 200,000 new jobs by 2030. The International Renewable Energy Agency predicts an increase to 42 million jobs in the renewable energy sector worldwide by 2050. In 2022, almost 390,000 positions in the renewable energy sector were already filled in Germany.
The possible fields of study are diverse and range from apprenticeships and various degree programs to engineering. Agricultural specialists in renewable energies and biomass are responsible for the operation and monitoring of biogas plants, biofuel plants, and biomass heating plants. Solar technology specialists sell and install photovoltaic systems, while water supply specialists operate machines and systems that pump, treat, and transport water.
The IT industry also continues to boom. Demand for qualified AI experts will rise sharply in the coming years, leading to a shortage in the labor market. According to Stepstone, demand has already increased by around 50 percent between 2019 and 2023. Companies are advertising significantly more AI positions, and AI experts can look forward to above-average salaries. Data scientists earn a median annual salary of €67,000; with professional experience, annual salaries of €90,000 and more are possible.
New career fields are emerging at the intersection of technology and traditional industries. AI trainers, prompt engineers, AI ethics officers, and specialists in human-AI collaboration are examples of roles that didn't exist just a few years ago. These professions require both technical understanding and human skills, a combination that AI alone cannot provide.
Business development managers for energy companies, agile coaches in the energy industry, data scientists for energy management, and smart grid experts are just a few of the sought-after careers with a future. These positions combine technical expertise with business acumen and contribute to the transformation of the energy industry.
Digitalization is also creating new job profiles in the healthcare sector. Specialists in digital care processes, telemedicine specialists, and health data analysts are increasingly needed. These roles combine medical expertise with digital skills and contribute to making the healthcare system more efficient and patient-centric.
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Guide to the new world of work: Strategies for individuals and society
Successfully managing the transformation requires coordinated efforts at all levels. For individuals, this means lifelong learning and a willingness to continuously develop. Twenty million US workers will need to retrain for new careers or learn how to use AI in the next three years. Eighty-three percent of experts agree: demonstrating AI skills will give current employees more job security than those who don't.
The most sought-after skills of the future are clearly defined. Analytical thinking tops the list, important to 69 percent of employers, followed by resilience and flexibility at 67 percent, and creative thinking. Technological expertise, especially in AI and cybersecurity, is becoming increasingly indispensable.
Germany has taken important steps with the introduction of the Citizen's Allowance and the associated continuing education subsidies. Since July 1, 2023, recipients of Citizen's Allowance and Unemployment Benefit I will receive an additional €150 per month if they participate in continuing education related to a vocational qualification. This subsidy is non-creditable and therefore supplements the standard benefit.
The training voucher provides up to 100 percent coverage for retraining and further training courses, including examination fees, travel expenses, and childcare if applicable. The Federal Employment Agency and job centers offer a variety of continuing education programs specifically tailored to the needs of recipients of citizen's allowance.
Continuing professional development aims to deepen existing professional knowledge or acquire new professional qualifications. Retraining is particularly attractive for individuals who no longer see any prospects in their current field. This offers complete training in a new professional field, culminating in a recognized professional qualification.
Companies must invest in their employees and make continuing education a strategic priority. Successful navigation requires immediate reskilling initiatives, strategies for human-AI collaboration, and coordinated public-private workforce development programs. Companies that fundamentally reorient their business models with AI and specifically seek out skilled workers with specific AI skills will be better positioned for the future.
Six aspects of successful transformation processes have emerged from empirical analyses. First, the need for change must be clearly explained. Managers should proactively engage in dialogue to make the necessity of change understandable to all employees. Second, the strategy must be transparent. The management strategy must be transparent throughout the change processes.
Third, existing entitlements should be taken into account. Entitlements and benefits acquired in the past must be appropriately considered in the change processes. Fourth, opportunities for participation must be provided. Employees should have sufficient opportunities to participate in the change processes.
Fifth, investing in continuing education is crucial. The company must invest sufficiently in continuing education so that employees can adapt to changing competency requirements. Sixth, the culture of error should be strengthened. The work culture must encourage people to try new things during change processes.
Extensive participation of people in the change process is also a critical success factor for the change process. If management is the driving force behind the desired changes within the company and employees can effectively contribute to the change, both newly introduced work technologies and diversity in the work environment will be used more intensively.
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The course for tomorrow is set today
The transformation of the German labor market is not an abstract vision of the future; it is already well underway. More than 10,000 industrial jobs are being lost every month, a trend that is expected to continue. At the same time, new career fields with enormous growth potential are emerging in areas such as renewable energies, healthcare, IT, and digital services.
The crucial question is not whether this transformation will happen, but how we shape it. The historical lessons of the horse-to-car revolution show: technological upheavals are inevitable, but their social consequences can be shaped. While 1 to 2 million direct jobs were lost in the horse industry at that time, the automotive industry created a net gain of 6.9 million jobs.
Today's transformation offers similar opportunities but presents us with greater challenges. The speed of change is faster, and the skills gap between disappearing and emerging jobs is wider. 77 percent of new AI jobs require a master's degree, while many of the disappearing jobs require only low-level skills. This makes comprehensive reskilling programs a necessity.
Germany has taken important steps with the introduction of continuing education benefits and the expansion of training opportunities. However, these measures must be expanded and systematically integrated with labor market policy, the education system, and economic development. The 5.4 million recipients of the citizen's income allowance and the millions of people in precarious employment must be systematically retrained for future-oriented professions.
Reform of the mini-job system is long overdue. Abolishing the rigid marginal employment threshold and introducing progressive social security contributions could increase gross domestic product by €7.2 billion by 2030 and create 165,000 additional jobs. This would not only strengthen social security systems but also create more productive jobs and better utilize human capital.
The future belongs not to those who wait and see, but to those who act proactively. Companies that invest in continuing education and adapt their business models can emerge from the crisis stronger. Individuals willing to engage in lifelong learning and embrace new technologies will also be successful in the transformed world of work. And a society that embraces this transformation as an opportunity and actively shapes it will prosper.
The next five to ten years will be crucial. During this period, the course will be set for whether Germany successfully masters the transformation or falls behind. The challenges are enormous, but so are the opportunities. While 92 million jobs worldwide will be lost due to automation, 170 million new ones will be created. The net increase of 78 million jobs is real, but it won't happen automatically; it must be realized through wise policymakers, entrepreneurial courage, and individual willingness to pursue further training.
German industry has weathered many crises and has repeatedly proven itself remarkably resilient. With its strong foundation, highly qualified workforce, and culture of innovation, Germany is well-positioned to successfully master the current transformation. What is crucial is that we do not remain steadfast in fear of job losses, but rather seize the opportunities opening up in new markets and professional fields.
History teaches us: Innovation doesn't replace the old to improve it, but to make it obsolete. Just as Henry Ford didn't build faster horses, but automobiles, today we don't need to create better industrial jobs, but rather develop entirely new forms of value creation. The companies, workers, and politicians who understand this lesson and act accordingly will be the ones shaping the new world of work. The others will end up like the horse breeders who once tried to breed faster horses while the automobile was already changing the world.
The moment to act is now. Transformation isn't waiting; it's already happening. The only question is whether we passively endure it or actively shape it. The decision lies with each of us.
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