German industry employment falls to 6.6 million, a 10-year low

German industry is shrinking from within — not through mass layoffs, but through a quiet failure to replace workers who leave.

The number of people employed in German industry fell to 6.6 million workers in 2025, the lowest level in a decade, according to a study by the German Economic Institute (IW) commissioned by the Bertelsmann Stiftung. The decline was not driven by rising dismissals but by companies' hesitation to refill vacancies and hire new staff, the study found.

"The decline in new hires is a warning signal for future employment trends," said Luisa Kunze, labor market expert at the Bertelsmann Stiftung, which commissioned the research.

Industry's share of the overall German labor market has fallen to 19% from 22% since 2014, fueling the debate about deindustrialization in Europe's largest economy. The wage premium that industrial companies once offered over other sectors has roughly halved within a decade, making manufacturing jobs less attractive to workers, the study showed.

The erosion of Germany's industrial base extends beyond employment into innovation capacity. The country's share of global research and development expenditure declined to 5.6% in 2021 from 8.5% in 2008, according to a separate IW analysis. Its share of global patent applications dropped to 15% in 2022 from 21.9% in 2000. The pharmaceutical, chemical, electrical and automotive sectors have been hit hardest, with only mechanical engineering strengthening its international patent position.

A survey by Deloitte and the Federation of German Industries found that 13% of German industrial companies have already relocated their research departments abroad, and 35% plan to do so within three years. The German economy's propensity to innovate has fallen to its lowest level since 2008, according to the Association of German Chambers of Commerce and Industry.

Defense spending is crowding out innovation funding. The federal government's 2026 budget allocates 21.8 billion euros to the Ministry of Education and Research — just 4.15% of total federal spending. By contrast, the defense budget already accounts for 15.75% of core federal expenditure and is projected to reach 152 billion euros by 2029. Chancellor Friedrich Merz has publicly championed a "high-tech agenda" to support German industry, but budget priorities tell a different story.

The implications extend beyond Germany. As the euro area's largest economy sheds industrial capacity and cedes ground in R&D to the United States and China, the European Central Bank faces a structurally weaker growth outlook that could reinforce pressure for monetary easing. The IW study's findings add to evidence that Germany's post-pandemic recovery has failed to reverse a decade-long shift away from manufacturing as the engine of employment and innovation.

This article is for informational purposes only and does not constitute investment advice.