Recent reports that Volkswagen (VW) could close several plants in Germany and shed up to 100 000 jobs globally have sent shockwaves through Europe’s industrial landscape. The
proposed restructuring, potentially the largest in the company’s history, would affect German factories in Hanover, Zwickau, Emden and Neckarsulm, where tens of thousands of workers are directly employed.
While the precise scale and timing remain under discussion, traditional automotive production is under intense pressure – from Chinese manufacturers, rising costs, trade frictions, and a shift to EVs that has not progressed at the same speed across markets.
Beyond the factory gates: local economic consequences
For policymakers, these developments raise important questions about how to anticipate and manage industrial transitions – given the long-term scars company closures can leave in local communities.
Earlier COGITO pieces (EN, DE) describe how mass layoffs often have persistent economic effects in the affected regions, as workers struggle to find new jobs quickly, upstream and downstream firms in local supply chains are affected, local households face declines in income, and local authorities struggle with increased demand for social spending and declining revenues. In many cases, regions become “trapped” in a cycle of low growth and declining employment opportunities.
The automotive sector exemplifies these risks. Plants are often deeply embedded in local economies, supporting supplier networks, logistics services, and retail activities. When production contracts, these spillovers amplify the initial shock. In regions such as Saxony or Lower Saxony, where VW sites play a central economic role, thousands of indirect jobs may be affected alongside direct employment losses.
From Layoffs to a New Lease of Life: what can local policymakers do?
Yet other areas bounce back. Differences in industrial structure, workforce skills, and connectivity to broader labour markets help explain these diverging trajectories. But so too do policy responses, with some clear lessons to be learned. Here are four.
1. Supporting rapid re-employment and entrepreneurship
First, act early. Job-search support, career advice and placement services help people get back into work faster after mass layoffs. Local employment services can match displaced workers with jobs in the same labour market. In Southern Australia, when several automakers closed their plants a decade ago, layoffs were announced three to four years in advance, giving local employment services time to prepare and connect displaced workers with growing sectors such as naval shipbuilding, space, and renewable energy. Some workers may also use severance payments to start a new business. Chambers of commerce can help turn these ideas into viable business plans.
2. Investing in skills for transitions
Second, boost skills. The ability of workers to move between jobs depends heavily on their skill profiles and whether they had access to continued training during employment. OECD research on job mobility shows that regions where people have better access to relevant training and skills development, particularly for emerging sectors, make it easier for workers to move between jobs. In the context of automotive restructuring, continuous upskilling programmes in areas such as battery technology, digital manufacturing, and engineering services can help workers pivot to growing industries early, before layoffs are announced. The experience of Hauts-de-France can serve as an example. The region has a long automotive manufacturing legacy , and reskilling programmes are helping local workers move into the battery and electric vehicle production roles being created along the Dunkirk-Douvrin-Douai axis.
3. Supporting mobility
Third, support workers to access opportunities elsewhere. In some cases growing sectors may not be in the same region where plant closures occur. Such geographic mismatches require policies that remove mobility barriers, including better information on employment opportunities in new places and support for transport and relocation. A good example comes from the Greater Copenhagen region, where Danish and Swedish public employment services introduced tandem counselling, with caseworkers from both countries jointly supporting jobseekers.
4. Engaging firms and social partners
Fourth, act together. Transitions are more successful when firms, unions, and governments work together. Advance notice of restructuring, joint training initiatives, and negotiated transition pathways can reduce uncertainty and improve outcomes for workers. In Riviera del Brenta, Italy, a specialised footwear industrial district between the mid-1980s and the mid-1990s, the traditional footwear industry faced growing competition from lower-cost producers. In response, the employers’ association and a local training institute worked together to codify traditional skills and upskill the workforce for high-end design and production. This helped displaced and at-risk workers move into higher-value-added roles, while trade unions negotiated for wages and conditions to rise.
Turning disruption into opportunity
The potential downsizing of Volkswagen’s German operations is a stark reminder that even the strongest industrial regions are not immune to global economic change. Yet it also illustrates a broader shift underway across advanced economies that may produce more shocks in more regions over the coming years.
The question is now whether policymakers have the right policies and institutions in place to react, adapt and emerge stronger.
As discussions around VW’s future continue, the experience will be closely watched, not only by workers and policymakers in Germany but also by regions across the OECD facing similar transitions.
Lukas Kleine-Rueschkamp is an Economist at the Organisation for Economic Co-operation and Development (OECD) in Paris. His main areas of research interest are in political economy and development, with a particular interest in political institutions and state capture in developing countries, the economic consequences of conflict and civil wars, and urbanisation in developing countries. He has a BSc in Economics from the University of Bonn. He was a Fulbright Scholar at the University of California, Berkeley before gaining a Master of Philosophy in Economics and a PhD in Economics from the University of Oxford.