Labor market under pressure: arms boom cannot stop crisis!

Labor market under pressure: arms boom cannot stop crisis!

The German economy is facing special challenges. While the labor market is coming under pressure in many sectors, the defense industry is experiencing a remarkable boom. This is particularly relevant given the uncertain geopolitical situation, including the Ukraine war, which has significantly increased demand for defense equipment. The labor market is currently showing a negative development, with job growth mainly occurring in the public sector and healthcare World reported.

In June 2023, the number of unemployed was 2.914 million, representing a slight decrease of 5,000 compared to the previous month, but documenting an increase of 188,000 compared to the previous year. The unemployment rate remains at 6.2 percent, while those responsible at the Federal Employment Agency observe that companies are not willing to hire people. Bärbel Bas, the new Labor Minister, is calling for economic policy impulses to improve the tense situation.

Arms industry on the rise

However, the defense industry has benefited significantly from increased defense spending since 2022. The industry is seeing job growth of 41 percent compared to four years ago. The demand for skilled workers in technology, engineering and IT is particularly high. Rheinmetall, a major player in the industry, plans to expand its production and convert its plants in Berlin and Neuss from making auto parts to producing defense. CEO Armin Papperger reports an order backlog that is expected to reach around 80 billion euros by the end of the year ZDF.

Over the past three years, Rheinmetall has hired between 6,000 and 8,000 new employees annually and plans to continue this trend. Hensoldt, another provider in the industry, is offering takeovers for employees of the automotive supplier Continental who are affected by factory closures. These developments suggest that the defense industry, although much smaller than other sectors, can exert significant influence on the labor market.

Economic challenges

While the arms industry is booming, other areas of the economy, particularly the metal, electrical and steel industries, are suffering from high levels of insolvency. Companies are increasingly relying on short-time work or cutting jobs, which is leading to stagnating job offers. There are currently 1.18 million job vacancies in Germany, a drastic decline compared to two years ago when this number was almost two million.

Growing long-term unemployment and the influx of refugees are increasing basic welfare costs, and citizen benefit spending is rising to €42.6 billion in 2023, with an estimated €40 billion in 2024. While the defense sector could potentially create up to 200,000 new jobs through increased defense spending, the question remains how other sectors will respond to the current economic uncertainty. The challenges are clear, but the defense industry could provide a bright spot in an otherwise bleak economic environment.