BERLIN - Germany's coalition parties agreed on a new immigration law on Tuesday to attract more skilled workers from countries outside the European Union, in a politically risky push to fill a record number of job vacancies and stabilise the public pension system.

Record-high employment and falling joblessness have led to a tightening labour market in Europe's largest economy, with employers struggling to staff more than a million positions and work-related bottlenecks limiting overall economic growth.

As Germany's workforce is expected to shrink over the next decades due to an ageing population and low birth rates, more migrants are seen as crucial to help firms find workers whose pension contributions support the growing number of retirees.

But the new immigration law, agreed over night by centre-right Chancellor Angela Merkel, hardline Interior Minister Horst Seehofer and Social Democrat Labour Minister Hubertus Heil, risks angering those voters who already feel neglected following the arrival of more than a million refugees since 2015.

The unprecedented influx of asylum seekers, mainly from Muslim countries in the Middle East, has already caused a popular backlash and propelled the far-right Alternative for Germany (AfD) party into the national parliament.

Seehofer said the compromise deal would remove labour market hurdles for non-EU citizens with job qualifications and German language skills while avoiding new incentives for refugees.

"We maintain the principle of separation of asylum and labour migration," Seehofer told reporters during a joint new conference with Heil and Economy Minister Peter Altmaier.

"With today's agreement, we have made it possible for the economic upswing to continue without an abrupt end," Altmaier said, adding that it would strengthen Germany's competitiveness at a time when other countries were espousing stricter immigration rules.


"With this, we can stimulate additional economic growth by several tenths of a percent. This is quite a lot," he added.

The coalition parties agreed the outline of the law, approved by cabinet on Tuesday, that companies will be allowed to recruit foreign workers in all professions, regardless of an official list of sectors suffering labour shortages.

The paper also proposes that the government will no longer insist that companies give preference to German citizens in filling vacancies before looking for non-EU foreigners.

In addition, foreign graduates and workers with vocational training will get an opportunity to come to Germany for six months to look for a position if they meet certain job qualifications and German language requirements.

They also have to prove that they have enough financial resources so they will not depend on welfare benefits during their stay in Germany, the parties agreed.

The parties also found a compromise wording on the disputed question of how to avoid the deportation of well-integrated asylum seekers who have found work and learned German.

Seehofer, whose CSU party fears losing voters to the far-right in a Bavarian election later this month, was initially against allowing migrants to switch out of asylum into residency status. He feared this would encourage future immigration by asylum seekers without the right skills.

The parties agreed to define a residence status for rejected but well-integrated asylum seekers who cannot be deported -- because of security concerns in their home country -- to enable them to earn a living and to give their employers more security when planning.

"It's a pragmatic solution which ensures that we're not sending back the right people," Heil said.

(Additonal reporting by Holger Hansen; Editing by Janet Lawrence and Jon Boyle) ((; +49 30 2888 5085; Reuters Messaging: