Q1 2024 Hiring Trends Index: A look at hiring trends and skill shortages in Germany and the UK

Key insights

• Despite low unemployment rates in both countries, the UK faced more hiring difficulties than Germany in the past year. Germany exhibits a more stable labor market environment, while the UK shows signs of recovery and flexibility in response to economic changes.
• The UK has a dynamic approach as both recruitment and working hours increased, contrasting with Germany's cautious growth strategy and more moderate hiring increases.
• More temporary staff across all company sizes were employed in the UK, indicating adaptability. Conversely, Germany focuses on strategic stability, evident in prevalent large-scale restructuring, particularly in larger companies.
• Recruiters in Germany face greater difficulties in sourcing the right candidates and managing skill mismatches, attributed to demographic challenges. The UK experiences less challenge in this area, benefiting from a more favorable demographic situation.
• The UK leads in adopting skills-based hiring strategies, including higher use of skills assessments, and matching technologies, resulting in improved hiring efficiencies and candidate engagement compared to Germany.

Status quo: Germany’s caution and the UK’s recovery

Over the past year, the UK labor market has faced more difficulties than Germany, particularly in hiring. This is despite maintaining a low unemployment rate at 3.9% in November 2023 to January 2024 and 4.2% in April. The growth in UK employment is stabilizing and economic inactivity has risen. Although job vacancies are declining, our study shows optimism among recruiters about future hiring prospects, supported by the UK emerging from a recession with positive GDP growth in Q1.

Growth trends in the UK contrast with potential stagnation in the German market, influencing labor market sentiments. Germany's labor market shows resilience with a smaller reduction in unemployment and an increase in employment.

The different economic forecasts for the UK and Germany are reflected in the differences we found in our study. In Germany, a smaller proportion of respondents reported a reduction in total hours worked (7%) compared to 15% in the UK, suggesting a more stable working environment. German companies displayed moderate changes with 6% increasing total work hours and 29% increasing recruitment, highlighting a more cautious approach to growth compared to the UK. Meanwhile, 25% of UK businesses increased total working hours and 24% introduced new hiring models.

The UK overall hired at a higher rate than Germany, demonstrating a more proactive stance in recovery. UK businesses also hired more temporary staff (27%) compared to Germany (11%), indicating higher flexibility in handling market fluctuations.

To give a more granular view, we looked at different company sizes. UK companies of all sizes (aside from those with less than 49 employees) reported higher percentages of increased recruitment compared to their German counterparts. This trend is pronounced in medium-sized companies (50-249 employees) as 46% of UK companies increased recruitment versus 37% in Germany.

Large German companies, on the other hand, were more likely to turn to restructuring measures as over half of companies with more than 5,000 employees undertook organizational changes, compared to 41% in the UK. This suggests a strategic emphasis on stability and efficiency in Germany's larger companies.

Furthermore, the UK shows a higher reliance on temporary staff across all company sizes, emphasizing a more flexible workforce strategy. This is especially notable in medium and large companies (250-5000 employees), with almost a third (32%) of UK companies employing temporary workers compared to just 14% in Germany. This flexibility could be a response to the UK’s changing economic environment and a strategy to adjust to the market conditions.

The dual challenge of finding sufficient and skilled talent

Challenges faced by recruiters in Germany and the UK shed light on differing national circumstances, particularly influenced by demographic trends.

In Germany, a significant 91% of recruiters report difficulty in finding the right candidates, compared to 80% in the UK, with 90% in Germany also struggling with skills mismatches (84% in the UK). The prominence of these recruitment difficulties in Germany can partly be attributed to the demographic decline, intensifying the competition for skilled workers. This means the German labor market faces a double challenge over the coming decade; an aging population and a shrinking workforce. In fact, HR decision makers in Germany are already more likely to cite ‘finding enough candidates’ as a challenge (84% vs 77% in the UK).

Although noticeably fewer recruiters from the UK rate the above points as challenging, the figures are high and are partly due to the ongoing skills shortage. In line with this, 6 out of 10 recruiters (59%) state that they have felt the increasing competition for the best specialists for some time or in the last one to two years. The current challenges, particularly in Germany, mean that two thirds (66%) of recruiters often or very often find that they lack the necessary resources to fulfil their roles, which is in stark contrast to 28% in the UK. This discrepancy illustrates the additional pressure that German recruiters are under.

Skills-based hiring leads to better job matches

Taking on a skills-based hiring approach has become a popular strategy in addressing skill shortages. However, the proportion of companies that already use this approach and derive benefits from it varies between the two countries.

In the UK, a notably higher percentage of recruiters have implemented skills assessments (40%) as part of their hiring processes, compared to 22% in Germany. This shows the UK's proactive approach in directly evaluating candidate competencies to overcome skills mismatches. Also, 43% of UK businesses have shifted their job ads to focus more on skills and competencies than qualifications, slightly more than Germany's 38%.

The UK also leads in diversifying and expanding talent pools through adjusted screening criteria, with over a third (34%) of companies using this practice compared to 28% in Germany. UK recruiters were twice as likely to report they were training hiring managers to conduct competency-focused interviews (34% in the UK vs. 17% in Germany) and were using matching technology to find more suitable candidates (31% in the UK vs. 9% in Germany).

The benefits of implementing these skills-based hiring practices are clear: In the UK, companies report various positive outcomes such as reduced time to hire, decreased hiring costs, improved diversity of candidates, better talent attraction, and more engaged candidates. Only a very small percentage of UK (4%) and German (11%) companies who use skills-based hiring report experiencing no positive outcomes.

Considering that more UK companies use skills-based hiring (85% in the UK vs 66% in Germany) and report deriving benefits from it, there is opportunity for German companies to counteract skills mismatches and a lack of suitable candidates with this method.

Both countries have implemented measures to address skills gaps; such as conducting a skills gap analysis, implementing upskilling programs, and investing in AI tools, with the UK generally showing higher proactivity in all these areas. While 83% of the UK recruiters state that they implemented at least one measure, the figure for Germany is 71%.

These measures highlight a strategic pivot in both countries towards more skills-focused recruitment and workforce development practices. The UK's broader adoption of such strategies, supported by technological integration and a flexible approach to qualifications, positions it advantageously to tackle the challenges of skills shortages and demographic changes more effectively than Germany.

Conclusion

The StepStone Group's Hiring Trends Index for the first quarter of 2024 highlights distinct approaches to labor market challenges in the UK and Germany. Germany maintains a conservative approach, characterized by cautious growth and strategic restructuring, influenced by demographic trends and potential economic stagnation. This has heightened the challenges of finding adequately skilled candidates due to a tighter labor market.

Conversely, the UK exhibits greater dynamism and flexibility, adapting to labor market changes with significant increases in recruitment and the adoption of new hiring models. Despite similar challenges related to skills mismatches, the UK's less drastic demographic pressures enable more flexible hiring practices, such as the use of temporary staff as highlighted in the UK focused Hiring Trend Index article from Totaljobs.

Both countries show a need for adaptive strategies that consider demographic and economic conditions, with the UK leading in the implementation of innovative recruitment practices. It is expected that more companies will adopt these practices to improve candidate fit and increase workforce diversity. This will not only enhance company attractiveness but also contribute to greater employee engagement and retention. As market conditions and technological developments evolve, skills-based hiring will play a central role in the recruitment strategies of modern businesses. In that sense our results clearly show that especially for Germany skills-based hiring still hold a lot of opportunity.

About the study

This article draws from The Stepstone Group's Hiring Trends Index study, which examines the current conditions of the labor markets in Germany and the UK and recruiter perceptions within those markets. The study was conducted in March and April, involving 900 HR decision-makers from Germany and 1,000 from the UK.