The job market is expected to undergo significant changes within the next year.
The German labor market, which has been stagnant for the past three years, is expected to show more significant improvement by 2026, according to labor market experts. This recovery, however, has been delayed due to a combination of economic stagnation, structural challenges, and external uncertainties.
The prolonged economic stagnation has weakened demand and corporate hiring willingness. Companies, particularly those in cyclical sectors like automotive and retail, remain cautious amid ongoing economic uncertainty. This cautious approach to hiring has led to a decrease in job vacancies, with the Federal Employment Agency reporting 632,000 job vacancies in June 2025, a quarter of a million fewer than in 2022.
Structural challenges such as the planned rise in minimum wage to €14.60 by 2027 and a 10% annual drop in job openings since 2023 have also contributed to labor market softness. Additionally, export weaknesses and trade policy uncertainties have held back the industrial sector, which is key to Germany’s economy. Exports are expected to fall slightly in 2025 before recovering in 2026, limiting immediate labor demand.
Demographic headwinds also pose a significant challenge. Germany faces a long-term structural labor shortage as 20 million workers will retire over the next decade while only 12.5 million enter the workforce. This aging population reduces labor supply and contributes to rising labor costs, which in turn dampen competitiveness and hiring.
Despite these challenges, domestic factors, including rising private consumption and increasing corporate investment (particularly in equipment and construction), are beginning to drive recovery. This recovery is expected to gain traction in 2026 with government fiscal expansion playing a supporting role.
The labor market recovery is not without its challenges. Unemployed individuals are finding it very difficult to find a new job, with their chances being lower than during the Corona pandemic. Unemployment remains high, with the number of unemployed people in Germany reaching 2.914 million in June 2025, an increase of 188,000 from June 2024.
Employers' Association President Rainer Dulger has urged the Federal Employment Agency to focus on matching job seekers with vacancies to reduce unemployment benefits and maintain stable contributions to the unemployment insurance. State Secretary Leonie Gebers in the Federal Ministry of Labour has emphasized the need to ensure that as many young people as possible who are looking for a training position find one.
CEO Andrea Nahles of the Federal Employment Agency does not expect improvement until at least next summer. In the meantime, efforts are being made to encourage more women to work part-time, as German women are ranked second-to-last in Europe in terms of the number of hours worked.
The apprenticeship market also shows signs of previous difficulties. There are 455,000 registered training positions, 25,000 fewer than last year, for the new training year. Despite this, the willingness of companies to hire remains low, and the number of socially insured employees is barely growing.
Labor market experts predict that the number of unemployed may exceed three million this summer. The delayed labor market recovery is a concern for many, but with improvements in domestic consumption, investment, and government spending, better labor market conditions are expected to start to foster starting in 2026.
The ongoing economic uncertainty and cautious hiring approach of companies, particularly in cyclical sectors, have significantly reduced job vacancies, as indicated by the Federal Employment Agency's report of 632,000 job vacancies in June 2025, compared to 2022. Furthermore,policy-and-legislation, such as the planned rise in minimum wage and the 10% annual drop in job openings, along with general-news like export weaknesses and trade policy uncertainties, have further contributed to labor market softness.
