Aid decision still pending from the Commission
The German labor market is grappling with a challenging outlook beyond 2025, with the number of unemployed expected to reach around 3 million and the unemployment rate hovering near 6.3%.
According to the latest data, the labor market shows signs of weakness due to economic headwinds. Job vacancies have fallen from over 700,000 two years earlier to about 632,000 by mid-2025, indicating slower hiring demand by companies. This cautious approach to hiring, driven by economic uncertainties, has contributed to a rise in unemployment despite ongoing worker shortages.
Temporary employment agencies are playing a crucial role in integrating refugees and foreign workers into the workforce. The increasing share of temporary workers, supported by immigration reforms easing access for skilled labor, is a key moderating factor.
However, the scarcity of skilled labor remains a challenge, particularly in sectors such as construction, where labor shortages and wage inflation are impacting costs and productivity, slightly constraining growth in related industries.
Policy measures, such as the 2023-2024 Skilled Immigration Act and the introduction of the Opportunity Card, aim to mitigate labor shortages by facilitating skilled worker immigration.
Despite these efforts, the German labor market is expected to remain strained beyond 2025, requiring structural adjustments to reduce unemployment and address sectoral skill gaps. The German Trade Union Confederation (DGB) has expressed concern over the rising unemployment rate and called on the federal government to take action.
The unemployment rate is lowest in the southern federal states of Bavaria (4.0 percent) and Baden-Württemberg. Conversely, the city-states of Bremen (11.8 percent) and Berlin (10.3 percent) have the highest unemployment rates.
In July 2025, the number of unemployed in Germany increased by 65,000 compared to the previous month, totaling 2,979 million people. The Federal Employment Agency reported 628,000 job vacancies, a decrease of 75,000 compared to the previous year. Moreover, there were still 182,000 unfilled apprenticeship places to be mediated in July.
The rise in unemployment has led to an increase in the number of people receiving unemployment benefits, with 991,000 people receiving benefits in July 2025. Labor Minister Barbara Bas (SPD) sees the need for targeted impulses for investments and employment now.
The German Social Association has expressed concern over potential cuts to unemployment benefits, stating that such cuts would lead to uncertainty. The Association has called for well-funded concepts for labor market policy and further training to address the challenges facing the German labor market.
In conclusion, the German labor market outlook beyond 2025 remains uncertain, with continued economic weakness and challenges such as slowing hiring demand and a reduction in job vacancies. Structural adjustments, policies to attract foreign skilled workers, and support for integration via temporary employment are key to addressing these challenges and stabilizing the German labor market.
In the context of economic uncertainties, businesses might face financial challenges due to labor market weakness, as evidenced by the decrease in job vacancies from over 700,000 to about 632,000 by mid-2025. To mitigate this, policy measures like the Skilled Immigration Act and the Opportunity Card are aimed at attracting foreign skilled labor and supporting integration, thereby potentially boosting business finances.
