Less industry, more jobless: cities suffer most from the corona crisis

Less industry, more jobless
Cities suffer most from the corona crisis

In cities there is less industry, but more “social consumption”. According to the Ifo Institute, this is shown in a new study. In metropolitan regions, unemployment is rising more significantly as a result of the pandemic than in rural areas. Eastern regions have also been doing noticeably badly since autumn.

According to a study by the Munich Ifo Institute, Germany’s cities are economically hardest hit by the Corona crisis. Unemployment has risen more markedly there and the business situation of companies has deteriorated more than in the other regions of Germany, according to the central results of a new study. The increase in short-time work, on the other hand, hits the industrially strong south-west of the country hardest.

“Social consumption plays a bigger role in the cities,” explained Andreas Peichl from the Ifo. “This is where the effects of the pandemic hit the office in particular.” Because there is less industry in cities, they have also benefited less from the recovery in the manufacturing sector in the second half of 2020.

Unemployment rate exacerbates regional inequalities

The researchers classified all rural districts and urban districts in four clusters of regions, each of which has similar demographic, structural and infection-related characteristics: cities, southwest Germany, northern Germany and eastern Germany. They used data on the business situation of companies and labor market statistics at the district level.

The effect of the pandemic is most evident in the development of the unemployment rate, explained the institute: Between January 2020 and August 2020 it rose by almost 1.5 percentage points in the city cluster. For the other clusters, this increase was only 0.3 to 0.8 percentage points.

This development exacerbates regional inequalities, warned the Ifo. The absolute number of the unemployment rate is also highest in cities with 8.2 percent in August 2020 (Northern Germany: 5.9 percent, Southwest Germany: 4.3 percent, Eastern Germany: 6.6 percent). In the business situation determined by the Ifo, there was also a slump in the companies in the city cluster that was around five to ten percentage points larger from spring 2020.

Abnormalities in the east

According to Ifo, it is “noticeable” that the business situation of companies in the East German cluster – especially Saxony and Thuringia – has fallen more sharply since autumn 2020 than in the other regions. The Ifo researchers suspect that this development is related to the very high number of infections there in the second wave, as the institute explained.

“It is currently difficult to assess whether these effects are sustainable,” said Peichl. Cities could benefit more than average from catch-up effects after the crisis. On the other hand, it is possible that home office and digitization will benefit rural regions in the long term.