German jobless mystery explained as refugees hide in statistics

[WARSAW] More than 1 million refugees later, German unemployment is still falling.

Europe's largest economy is defying concerns that the mass arrival of people from war-torn countries including Syria and Iraq over the past two years would lift joblessness and hurt growth.

Instead, labour is the tightest in more than a quarter of a century and output increased in 2016 at the fastest pace in five years, bolstered by private consumption and government expenditure on migrants.

The resilience masks some of the challenges related to absorbing foreign workers into a sophisticated labour market when they lack the necessary language skills and qualifications.

Progress in integrating them successfully may be key for Angela Merkel, whose refugee policy has been described as "catastrophic" by US President-elect Donald Trump, as she seeks a fourth term in office. Any setbacks threaten to turn national elections this year into a vote on the German Chancellor's immigration policy.

"What surprises a lot of people is that you have a million people coming to Germany, yet you don't see anything in unemployment," said Raimund Becker, a board member at the Federal Labor Agency in Nuremberg.

"That's linked to the demographic change, and it's also due to the fact that not all of these one million people are available for the labour market."

Germany, a country with an aging population and one of the lowest birthrates in the world, sees around 300,000 people leaving the workforce every year, according to labour-agency estimates.

Employment still rose by an average of 36,000 per month in 2016 to a record 43.5 million. By comparison, the number of refugees registered as jobless only increased by about 10,000 per month in the first half of last year, and even less in the second half.

"As long as companies create more jobs than the number of refugees entering unemployment, that balances out the overall rate, even if it's not necessarily refugees taking up the positions being created," said Stefan Kipar, an economist at Bayerische Landesbank in Munich.

"If growth in new positions slows down, you could start to see it feed through."

At the height of the refugee crisis in 2015, the Germany's Labour Ministry predicted an increase in joblessness for last year. Instead, the number of people out of work has fallen.

Forecasts compiled by Bloomberg show economists predict unemployment will remain unchanged at 6.1 per cent this year, before picking up to 6.2 per cent in 2018. The Bundesbank is more optimistic. It sees the rate falling to 5.8 per cent next year.

As for refugees in integration and language classes, they're filed away as job seekers and will probably stay off the unemployment register for years to come. Part of the explanation lies in Germany's apprenticeship system - a combination of classroom education and on-the-job training - that serves as an entryway to the country's labour market, and also represents a high barrier for foreigner with little or no knowledge of the local language.

According to labour agency projections, it will take as long as six years for a refugee to complete German classes, vocational school and internships to be considered a skilled worker, and potentially a lot longer to find a job. After 15 years, refugee employment is estimated to average about 70 per cent.

Election Year

Early successes will be crucial for Mrs Merkel in an election year to silence critics of her open-border policy. The chancellor has been assailed by the anti-immigration Alternative for Germany party, which is fuelling an emotional debate in the country - now compounded by terrorism fears after a Berlin attack last month.

Poor employment prospects, low-income growth and a rise in populism in many developed economies will be discussed at a panel chaired by Bloomberg Television's Francine Lacqua at the World Economic Forum in Davos on Wednesday.

Speakers will include International Monetary Fund Managing Director Christine Lagarde, hedge fund billionaire Ray Dalio and the finance ministers of Italy and Brazil.

The German government pumped up spending by 5.8 per cent last year, the most since 1992, as some 280,000 refugees arrived in Germany, following the 890,000 in 2015. That might be a good investment for a country whose population may fall to 68 million by 2060, from over 80 million today.

"The big opportunity for Germany is that these refugees are very young - 70 per cent of them are under 30 years old," said labour agency's Mr Becker.

"It's not a big problem for Germany to integrate them into the labour market if you accept that you need a little bit of patience and you have to invest money and staff to give them the opportunity."

BLOOMBERG