Can Higher Wages Contribute to Solving the German Labor Shortage?

Germany faces an intense debate around labor and skills shortages. The authors argue that increased competition in the labor market and consequently higher wages and better working conditions are a crucial factor to address labor scarcity. This does not mean that other measures to combat labor scarcity, such as reforms to the immigration system, provision of childcare, or tax disincentives are redundant. However, as the demographic transition will dramatically reduce labor supply, increased competition for labor is important to allocate a scarce factor more efficiently.