Declining job losses: a sign of improving labor market conditions
Majority of German Companies Maintain Job Reduction Plans
The ifo Employment Barometer inched up to 95.2 points in May, indicating a possible stabilization in the labor market. Klaus Wohlrabe, head of ifo surveys, stated, "The labor market shows initial signs of stabilization, but whether this is a genuine trend reversal depends on the future economic development."
While the industry sector exhibits a fifth consecutive monthly increase in the barometer, the majority of companies continue to reduce their workforce. Service providers, particularly in temporary work, exhibit cautious optimism, slightly increasing their staff. However, retail and construction sectors still plan to cut jobs, albeit at a decreasing pace.
Despite some optimistic indicators, recent reports suggest a significant or notable decrease in planned job cuts in May 2025 has not materialized. Large-scale layoffs, particularly in the automotive and industrial sectors, have remained common throughout the first half of the year.
High profit targets and the need for restructuring drive job cuts in the automotive industry, with companies like Daimler Truck and Volkswagen aggressively pursuing cost reduction and efficiency programs. Similarly, major banks like Commerzbank are reducing headcount to meet profitability targets, although these reductions are often spread out over several years.
In retail, services, and construction sectors, ongoing labor market tightness—with 28% of companies reporting labor shortages—may influence decisions to slow or pause job cuts. Employers in these sectors may be more cautious about releasing workers due to difficulties in finding replacements.
The European and German economies have experienced stagnation, which typically leads to cautious business investment and workforce planning. Furthermore, labor shortages, particularly in skilled roles, could make companies reluctant to eliminate jobs too deeply, especially in sectors where replacements are hard to find.
Despite industry-specific reasons for caution, the overall job cut plans appear to be modulated in some sectors, such as retail, services, and construction, despite the continued large-scale job reductions in industry and finance.
Other sectors, such as retail, services, and construction, are showing signs of moderation in their job reduction plans, potentially due to ongoing labor shortages. Meanwhile, financial institutions, including major banks, continue to reduce their workforce to meet profitability targets.
