Job cuts and coalition parties without a majority – when ideological blockades slow down the German economy

When symbolic politics and party tactics become more important than economic reason, and their ideology weakens Germany's position as a business location.

… billion-dollar severance packages are becoming the business model, and Germany's economic model is collapsing.

German corporations are undergoing an unprecedented transformation, the extent of which only becomes apparent upon closer examination of their balance sheets. What lies behind sober terms like restructuring and efficiency improvements is, in reality, the largest reduction in workforce in the history of the Federal Republic. In the first nine months of 2025 alone, companies listed on the German stock index spent around six billion euros on restructuring measures, with the majority of this sum going toward severance packages, early retirement schemes, and phased retirement programs. Since the beginning of 2024, these costs have totaled more than 16 billion euros, a figure that has surprised even seasoned economic observers.

This development is not a temporary phenomenon, but marks a fundamental break with the previous German economic model. The combination of a persistent recession, structural disadvantages at the location, and intensified international competition is forcing corporations to restructure, the consequences of which extend far beyond the affected workforces. The question of whether Germany can maintain its status as Europe's leading industrial nation is no longer theoretical, but is being addressed daily in boardrooms and company meetings.

The problem lies not only in the economic downturn, but in a dangerous combination of several factors. Energy costs in Germany are around 60 percent higher than in the US and have become a significant competitive disadvantage compared to other European countries. At the same time, many companies lack the skilled workers needed to transform to new business models, while paradoxically, massive job cuts are taking place in other sectors. This discrepancy between what the economy needs and what the labor market offers is a symptom of deeper structural problems.

The German government has taken initial countermeasures with its growth package and immediate tax investment program. Accelerated depreciation is intended to stimulate investment, while the gradual reduction of corporate tax is meant to improve competitiveness. However, it remains questionable whether these measures will be sufficient to halt the downward trend. The German Economic Institute (IW) forecasts a 0.2 percent contraction in economic output for 2025, while all other major economies are expected to grow. Germany is thus threatened with its third consecutive year of recession, an unprecedented event in postwar German history.

The true extent of the crisis is revealed in the Federal Statistical Office's figures on industrial employment. At the end of the third quarter of 2025, approximately 5.43 million people were employed in the entire manufacturing sector, a decrease of 120,300 people, or 2.2 percent, within a year. Since the pre-pandemic year of 2019, the number of employees has shrunk by almost 250,000, a decline of 4.3 percent. These figures illustrate that deindustrialization is no longer just a theoretical threat, but is already underway.

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The automotive industry as the epicenter of change

The German automotive industry is facing the most severe crisis in its history. Employment figures have fallen to a fourteen-year low, a level last seen at the end of the second quarter of 2011. With 721,400 employees at the end of the third quarter of 2025, this key sector employs over 48,700 fewer people than a year earlier, representing a decline of 6.3 percent. This drop is greater than in any other major industrial sector with more than 200,000 employees and signals that the transformation in the automotive industry can no longer be managed in a socially responsible manner.

The automotive supply industry, traditionally considered the backbone of the German automotive sector, has been hit particularly hard. While employment at car and engine manufacturers fell by 3.8 percent to 446,800 people, it collapsed dramatically at the supplier level. In the body, superstructure, and trailer manufacturing sector, the decline was 4.0 percent to 39,200 employees, and in the parts and accessories supply sector, it was even more severe, at 11.1 percent, to almost 235,400 people. These figures reveal a trend that the chief economist of Hamburg Commercial Bank describes as typical of economically challenging times: cost pressures are being passed on from manufacturers to suppliers.

At Volkswagen, Germany's largest automotive group, a collective bargaining agreement was reached with the IG Metall union after more than 70 hours of negotiations. The agreement stipulates the reduction of 35,000 jobs by 2030 at the company's ten German plants. While plant closures were averted, the price is high. Employees are initially foregoing a flat-rate pay increase of just over five percent, which is intended to partially finance measures for managing staff surpluses until 2030. Volkswagen recorded €2.5 billion in restructuring expenses last year, with an additional €900 million added in the first nine months of 2025.

Mercedes-Benz's Next Level Performance program aims to save around five billion euros by 2027, with a significant portion to be achieved through staff reductions. The company has offered severance packages, some in the six-figure range up to 500,000 euros, to approximately 40,000 employees working outside of production. Reports indicate that around 4,000 employees have already left the company under the program, with many taking advantage of a so-called "turbo period" until the end of July, which offered particularly high bonuses. In the third quarter of 2025 alone, Mercedes spent 876 million euros on staff reductions in Germany and financing cutbacks abroad. Ultimately, when restructuring expenses are included, Mercedes lost not 35 percent, but 50 percent of its profit.

Major automotive suppliers are facing even greater challenges. Bosch, the world's largest automotive supplier, has announced plans to cut 22,000 jobs in Germany, up from an initial estimate of 9,000. Labor Director Stefan Grosch explained that the company needs to save €2.5 billion to secure the future of its Mobility division. Employees report an atmosphere of sheer fear, while works councils and the IG Metall union are announcing their resistance. The Feuerbach, Schwieberdingen, Waiblingen, Bühl, and Homburg plants are particularly affected, with Waiblingen even slated for the complete closure of its crimping tool production by 2028.

ZF Friedrichshafen, Germany's second-largest automotive supplier, plans to cut up to 14,000 jobs in Germany by the end of 2028. The company, which recently ousted its CEO Holger Klein, is struggling with heavy losses in its powertrain division and must completely reinvent itself. The original plans to spin off the so-called Division E, the loss-making powertrain division, have been shelved for the time being following massive protests from the workforce, but the fundamental problems remain unresolved.

Continental has announced extensive job cuts at its plastics technology subsidiary ContiTech, aiming to save €150 million annually starting in 2028. Some operations will be relocated to countries with competitive cost structures, which works council sources estimate could put up to 1,500 jobs at risk in Germany. The company has already announced the closure of plants in four German states, including Bad Blankenburg in Thuringia and Stolzenau in Lower Saxony.

This development is no coincidence, but rather the result of a dangerous mix of delayed strategic decisions and changing market conditions. German manufacturers massively underestimated the speed of electrification in China and are now reacting with emergency programs to a transformation that has been apparent for years. In the first quarter of 2025, the share of New Energy Vehicles (NEVs) in new registrations in China already reached 51 percent, while Volkswagen only achieved a 2.0 percent market share in the Chinese NEV segment, BMW 0.9 percent, and Mercedes 0.5 percent.

The steel industry between overcapacity and climate change

Germany's largest steel producer, Thyssenkrupp Steel Europe, is facing a radical restructuring. Plans presented at the end of November 2024 foresee a reduction in the workforce from its current size of nearly 27,000 to 16,000 within six years. While the restructuring agreement, reached after three days of negotiations, rules out compulsory redundancies until 2030, it includes significant financial cuts: holiday pay will be eliminated, Christmas bonuses reduced, and the work week will decrease from up to 34 hours to 32.5 hours, resulting in real income losses for many employees.

The group has been plunged into crisis by economic weakness, high energy prices, and cheap imports from Asia. Structural overcapacities in the European steel market and declining demand from key industries such as the automotive sector have exacerbated the situation. At the same time, Thyssenkrupp must manage substantial investments in climate-neutral steel production to complete the transition to hydrogen-based manufacturing. The planned climate-neutral steel production project at ArcelorMittal, which was to be supported with €1.3 billion in state aid, has already been cancelled.

A plant in Bochum is slated for closure in 2028, while a planned closure of the plant in Kreuztal-Eichen has been shelved for the time being. The headquarters staff is to be reduced from the current 500 to 100 employees, and further cuts are planned in administration, affecting approximately 1,000 employees. Human Resources Director Marie Jaroni described the move as an important milestone for the company's future viability, while Knut Giesler, district manager of the IG Metall NRW union, characterized the compromise as viable but tough.

Chemical and pharmaceutical industries under restructuring pressure

Bayer, the Leverkusen-based pharmaceutical and agrochemical company, has already booked the majority of its restructuring costs: €1.3 billion in 2024 and a further €380 million in the first nine months of 2025. The reduction of approximately 4,500 positions in Germany is to be completed by the end of 2025, with around 3,000 of these reductions affecting so-called cross-functional roles in administration and IT. The company is relying on severance packages, partial retirement, and natural attrition, as compulsory redundancies were ruled out until the end of 2025.

Bayer is under considerable pressure. Its pharmaceutical business lacks major blockbuster drugs that can gradually compensate for expiring patents on billion-dollar medications like Eylea and Xarelto. The agricultural business is suffering from weak prices for the herbicide glyphosate and billions in costs for US litigation concerning alleged cancer risks. The acquisition of the US company Monsanto has proven to be a costly undertaking with side effects that significantly restricts the company's financial flexibility.

New CEO Bill Anderson is pushing ahead with his plans for a flatter organizational structure, involving significant job cuts across the group's subsidiaries. At the turn of the year, the company employed 32,100 people in Germany, with more than 22,000 at the corporate headquarters and other locations. Job security was only extended for another year until the end of 2026, which does little to alleviate the uncertainty among employees.

Mechanical engineering in a slump of orders

Germany's mechanical engineering sector, traditionally a flagship industry of the export nation, is heading for a five percent decline in production this year. The export-oriented sector is suffering from a noticeable slump in demand and underutilization of capacity, with new orders in September down 19 percent in real terms compared to the same month last year. Orders from abroad plummeted by 24 percent, while domestic demand fell by five percent.

The capacity utilization of companies is at its lowest level in the last five years, averaging 80.8 percent, with 35 percent of the surveyed companies even falling below this already low average. The proportion of businesses operating at full capacity has halved compared to the historical average. The German Engineering Federation (VDMA) is already speaking of a structural growth crisis and warns that essential parts of the business model are at risk of collapsing.

The difficult situation will only truly resolve itself once the numerous crises in global trade, such as those surrounding the US tariffs, are resolved and reforms are implemented in Germany and Europe that genuinely relieve the burden on companies. In a VDMA survey, 27 percent of the companies polled expressed their expectation of reducing their core workforce in the next six months, while only 55 percent intend to maintain it. Employment in the mechanical engineering sector fell by 2.2 percent to approximately 934,200 people at the end of the third quarter.

The financial sector is shrinking

Commerzbank plans to cut 3,900 full-time positions worldwide by 2028, more than 3,300 of which will be in Germany. This decision was made in a year in which the bank recorded record profits and reported a net income increase of approximately 20 percent to around €2.7 billion. The job cuts will primarily affect the company headquarters and other locations in Frankfurt, particularly staff functions and back-office areas.

The restructuring costs for the job cuts are estimated at around €700 million before taxes in 2025. The bank plans to create new jobs at international locations in Poland, Malaysia, Sofia, Prague, and Łódź, where labor costs are 30 to 70 percent lower. Commerzbank is thus using the same mechanism as industrial groups: replacing highly paid positions in Germany with lower-paying ones abroad.

The job cuts are part of a defensive strategy against the threatened takeover by Italy's UniCredit, which last autumn seized the opportunity presented by the German government's partial withdrawal as a shareholder to secure larger stakes. CEO Bettina Orlopp is attempting to make the share price so attractive to investors through efficiency improvements and enhanced returns that a takeover becomes too expensive.

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The technology group Siemens between record profits and job cuts

In March 2025, Siemens announced plans to cut approximately 6,000 jobs worldwide, including around 2,850 in Germany. The measure primarily affects the recently struggling Digital Industries division within the automation business, and to a lesser extent, the electric vehicle charging solutions business. This division is suffering from high inventory levels at customer and dealer locations and must adapt to changing market conditions.

The announcement was met with fierce criticism from employee representatives. Given a net profit of nine billion euros in the 2024 financial year, the job cuts seemed incomprehensible to the central works council. Central works council chairwoman Birgit Steinborn expressed surprise and anger at the high number of reductions and demanded sustainable job security instead of cutbacks. IG Metall vice-chairman Jürgen Kerner cautioned that the transformation could not be achieved through downsizing, but rather through positive change, primarily through the further development and training of employees.

In July 2025, Siemens reached an agreement with the Works Council and the IG Metall union on a reconciliation of interests and a transformation agreement involving a multi-million euro fund. Siemens has earmarked between 350 and 400 million euros for severance payments in fiscal year 2025/26. The job reductions are to be achieved without compulsory redundancies, with affected employees being offered further training and retraining where possible.

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The paradox of the skills shortage

The German economy is facing a remarkable paradox: despite a weakening economy and massive job cuts, the shortage of skilled workers is worsening. 28.1 percent of German companies are now struggling with a lack of qualified personnel, an increase from the already worrying 27.2 percent in April. This development, occurring amidst a prolonged economic downturn, defies all conventional economic expectations.

The main reason for this paradox is the discrepancy between the number of jobs cut and the qualifications required. Mass layoffs often affect administrative areas, production, or support departments, while highly specialized fields such as IT, artificial intelligence, or engineering continue to suffer from a shortage of skilled workers. This mismatch demonstrates that Germany doesn't have too many workers, but rather the wrong kind.

The situation is particularly dire in the service sector, where 33.7 percent of companies reported difficulties finding skilled workers. The logistics industry is groaning under the strain, with over half of its firms unable to find suitable employees. Demographic change leaves no doubt that the problem will worsen in the long term, as the ifo Institute warns. By March 2025, Germany will be short more than 387,000 skilled workers.

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The burden of high energy costs

Energy costs have become a significant competitive disadvantage for German industry. In 2024, the average electricity price for industry in Germany was around 14 cents per kilowatt-hour, significantly higher than the international average and approximately 60 percent higher than in the USA. The main reasons for this are increased procurement costs, high grid fees, taxes, and levies.

A recent survey by the Association of German Chambers of Industry and Commerce (DIHK) shows that 37 percent of industrial companies in Germany are considering reducing or relocating their production abroad, a significant increase compared to previous years. Large companies with over 500 employees are particularly affected, with 59 percent of them considering such measures. Energy-intensive companies also show an above-average willingness to relocate.

The competitive disadvantage faced by German companies in terms of energy costs compared to their international competitors is likely to continue. Several structural and political factors contribute to this, including ambitious climate policy targets with high investment requirements and rising grid fees. The authors of a DIHK study anticipate an increase in electricity grid fees of around 63 percent for the commercial and retail sector and almost 50 percent for industry by 2045.

The new German government has responded by introducing an industrial electricity price. Energy prices have been a real competitive disadvantage for Germany, even compared to other European countries, and these measures are intended to remedy that. The German Economic Institute (IW) calculates savings of four billion euros for companies by 2027. However, it remains to be seen whether these measures will be sufficient to stop the relocation of production.

The impact of US tariffs

The tariffs introduced by the Trump administration are significantly impacting the German export sector. More than 60 percent of German industrial companies are negatively affected by the US tariffs introduced since January 2025, and just as many expect negative repercussions for their business by the end of Trump's term. On June 3, 2025, import tariffs on steel and aluminum products were even increased to 50 percent.

The EU has reached an agreement with the US government that imposes a 15 percent tariff on most exports, including cars, semiconductors, and pharmaceuticals. By comparison, in 2024 the average tariff on EU products was 3.5 percent. Deloitte has modeled that German exports to the US could decline by €31 billion in the medium term. This would result in a net loss of €7.1 billion for total exports to German industry.

The mechanical engineering and pharmaceutical sectors are particularly hard hit, with export declines of €7.2 billion and €5.1 billion respectively. Experts anticipate a 16 percent drop in exports for the chemical industry, amounting to a loss of €2 billion, while the automotive industry is expected to lose 12 percent, or €4 billion. According to the ifo scenario, exports from German mechanical engineering companies to the USA will fall by 30 percent, and those from the automotive industry by 22 percent.

The food industry as an anchor of stability

Amidst the widespread crisis, there is a glimmer of hope: the food industry is the only major industrial sector to have recently recorded an increase in employment. The number of employees rose by 8,800, an increase of 1.8 percent, to a total of 510,500 at the end of the third quarter of 2025. This development stands in stark contrast to the negative trend in all other major industrial sectors.

The reasons for this special status lie in the nature of the business. The food industry is less cyclical than, for example, mechanical engineering or the automotive industry: people need to eat, even in economically difficult times. Furthermore, the sector produces a wide range of products, from basic foodstuffs and convenience foods to specialty items, which makes it less dependent on individual markets or trends.

However, the consumer goods industry as a whole also faces challenges. For 2025, the executive boards of major German manufacturers expect a significant decline in the EBIT margin to an average of around eight percent, representing a decrease of eleven percent compared to the previous year. Companies are expanding their workforce in Asia, Eastern Europe, and India, while simultaneously reducing jobs in Germany, Western Europe, and Southern Europe. Employment growth in the sector is projected to reach only 0.8 percent in 2025, significantly below the manufacturing sector average.

Short-time work as a crisis indicator

The increasing use of short-time work is a clear indicator of the depth of the current crisis. Nearly one in five industrial companies, specifically 17.9 percent, used short-time work in February 2025. For the next three months, 25.4 percent of industrial companies expected to use short-time work, indicating a further worsening of the situation. In light of this development, the German government extended the maximum duration for receiving short-time work benefits to 24 months, effective January 1, 2025.

The highest proportion of companies using short-time work is in the metal production and processing sector at 40 percent, followed by the automotive industry at 27 percent, and furniture manufacturers, mechanical engineering companies, and manufacturers of electrical equipment, each at 25 percent. The ifo Institute interprets these figures as evidence that companies do not view the current situation as merely a temporary crisis. The focus is on job cuts; short-time work is now only being used as a temporary measure.

According to the Federal Employment Agency, short-time work due to economic conditions increased sharply by 44 percent in the winter months. More than 80 percent of employees on short-time work are employed in the manufacturing sector. In mechanical engineering, capacity utilization stabilized slightly at 78.5 percent in April 2025, but many companies continue to suffer from a lack of orders. The mechanical and plant engineering sector currently employs around 1.016 million people, a decrease of 1.4 percent compared to the previous year.

Competitiveness at a historic low

According to ifo surveys, the competitiveness of German industry is at a historic low. In October 2025, more than one in three industrial companies – 36.6 percent, up from 24.7 percent in July – reported a decline in their competitiveness compared to countries outside the EU. This is the highest percentage ever recorded in ifo surveys. Pressure is also mounting within Europe: The proportion of companies reporting declining competitiveness compared to EU member states rose from 12.0 to 21.5 percent, also a record low.

The situation is particularly dramatic in energy-intensive industries. In the chemical industry, more than half of all companies reported a decline in competitiveness. A similarly high proportion (47 percent) is reported by manufacturers of electronic and optical products. In mechanical engineering, the figure is around 40 percent.

The structural problems are well-known: high energy prices, oppressive bureaucracy and regulations, and a lack of reliability in economic policy. Ninety percent of companies report that the reliability of economic policy has deteriorated significantly in the past four years. Eighty-six percent of respondents feel that bureaucracy and regulations have increased enormously. Despite the weak economy, 65 percent of businesses continue to complain of economic pressure due to labor and skills shortages.

The transformation of the automotive industry as an employment risk

According to a study commissioned by the German Association of the Automotive Industry (VDA), the transition to electromobility will result in the loss of another 140,000 jobs over the next ten years, assuming current trends continue. This represents roughly 15 percent of the 911,000 people employed in the sector in 2023. Between 2019 and 2023, 46,000 jobs were already lost, primarily in mechanical engineering and plant engineering roles.

The main reason for the job losses is the transformation effect of the shift to alternative drive systems. Electric cars no longer require complex transmissions, and German suppliers largely missed the boat on developing their own battery cells. It is striking that Bosch, Continental, and ZF never seriously entered large-scale battery cell production, one of the key value creation areas of electromobility.

However, the transformation also presents opportunities. It will create around 260,000 new jobs, primarily in emerging industries such as battery manufacturing, software development, and the operation of charging infrastructure. The eastern German states could even benefit: They are expected to see a nine percent increase in jobs, or 16,000 positions, mainly due to the new battery production facilities. The challenge lies in training employees for these new tasks.

Looking ahead to an uncertain future

The German economy is at a crossroads. The ifo Institute forecasts growth of only 0.2 to 0.3 percent for 2025 and 0.8 to 1.5 percent for 2026. Structural change and uncertainty are paralyzing industrial and consumer activity, while forecast risks remain high given the upcoming economic policy decisions in Germany and the United States.

Revised GDP data from the Federal Statistical Office have revealed that the recession in Germany over the past two years was significantly more severe than previously thought. The German economy was clearly in recession in 2023 and 2024, characterized by a significant, prolonged, and widespread decline in economic output coupled with underutilized overall economic capacity. GDP fell by 0.9 percent in 2023 instead of the previously assumed 0.3 percent, and by 0.5 percent in 2024 instead of 0.2 percent.

A successful transformation of the industrial sector requires reliable economic policy decisions that go hand in hand with a rapid improvement in location factors and thus international competitiveness. These include a lower tax burden for companies, reduced bureaucracy and energy costs, the expansion of digital, energy, and transport infrastructure, and an increase in the labor supply. If these measures are not implemented, there is a significant risk that industries will abandon Germany and deindustrialization will become a reality.

Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Business Cycle Research at the Hans Böckler Foundation, warns of further deindustrialization but sees room for maneuver. The data shows where the crisis points lie in German industry, but the job losses are moderate compared to the decline in production and orders. It is not too late to save the majority of industrial jobs. Given the aggressive economic policies of the US and China, Germany needs a comprehensive industrial policy and should encourage the EU to define key industries itself and use the single market to promote European production in these sectors.

The coming years will show whether Germany can manage the transformation from an industrial nation based on combustion engines and traditional mechanical engineering to a digital, climate-neutral economic hub. The billions currently flowing into severance packages and early retirement schemes represent wasted investments in the future. Every euro spent on job cuts is a euro missing for training, research and development, and the development of new business models. German corporations have opted for the rapid approach of adjusting their workforce to the reduced economic output. Whether this is the right path to remain competitive internationally will only become clear in a few years. The signs are not promising.

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