The retirement of Germany's baby boomer generation will hit the country's labour market harder than previously anticipated, according to a new study by the employer-affiliated Institute for Economic Research (Institut der deutschen Wirtschaft, IW) published on Monday. The institute now projects a decline of approximately 4.3 million workers in the available labour force by 2036, a significantly larger figure than the 3 million shortfall it forecast just two years ago.
The revised estimate is driven by an accelerating contraction of Germany's overall population, which is occurring earlier than expected.
In 2024, the IW was still projecting Germany's population would grow to 85 million by 2040. That projection has since been revised sharply downward. According to the institute, Germany's population fell in 2025 for the first time in many years, by around 100,000 people. By 2040, the total population is now expected to drop below 82 million.
The institute attributes this to a severe natural demographic deficit: deaths are outpacing births by approximately 350,000 per year. Until recently, net migration had offset these losses. However, the IW notes that the number of people arriving in Germany has declined considerably, leaving a gap that natural population trends alone cannot close.
The IW defines Germany's baby boom generation as those born between 1954 and 1969, a cohort that encompasses close to 20 million people. Around 5 million of them have already passed the age of 67. The remaining members of this generation will reach retirement age by 2036, with an average of roughly 1.3 million reaching that threshold each year.
At the same time, only around 800,000 younger workers are entering the labour force annually to take their place. The net result is a loss of approximately 500,000 potential workers per year. By 2036, the IW projects that Germany's total pool of available workers will fall by around seven percent to approximately 51 million people.
IW economist Holger Schäfer put the situation in stark terms. "Germany is not facing demographic change, it is already in the middle of it," he said. "Within just a few years, the economy will lack the workforce needed to generate prosperity and sustain the welfare state in its current form."
Schäfer outlined two core responses to the challenge. The first is to increase the number of people working longer, raising employment participation rates among older workers. The second is to make it easier for companies to recruit qualified skilled workers from abroad.
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