A “hidden revolution” is rapidly changing German labor markets and German unions. That’s the conclusion of three important articles in the Financial Times. (Comment and Analysis, January 6, 2006. www.ft.com subscription required)
The German system has been based on industry wide bargaining between powerful unions and broad based employer organizations. Negotiated agreements are made standard throughout an entire industrial sector. Elected works councils-- heavily influenced by the unions-- represent workers at the workplace level. Strong labor laws, including employee representatives on the boards of corporations support this structure. As a result of industry wage agreements the classic trade union strategy of taking wages out to competition was largely achieved and destructive competition between firms to cut wages was reduced or eliminated.
Now that has changed. The industry wide agreements are giving way to concessionary bargaining at the firm level often by works councils operating on their own. Two years ago IG Metal signed an industry agreement with an “opt out” clause that opened the way for “flexibility” agreements at more than 500 companies. According to the FT a survey of works council members revealed that flexibility agreements exist in up to ¾ of all German firms. They are especially common in the Mittelstand sector—the thousands of small to medium size family owned firms that play an important part in the German economy.
Just as it is in the US, concessionary bargaining has become standard and for the same reasons—globalization and the threat of job migration, in Germany’s case especially to Eastern Europe. While there has been a steady drumbeat of attacks in recent years on the “inflexibility” of the German labor market, and the public policies that regulate the labor market, according to the FT, the changes brought by the “hidden revolution” have been so extensive that “[e]ven proposals on wage bargaining by Chancellor Angela Merkel ….are seen as largely superfluous by many executives.”
A Siemens executive says about this “hidden revolution”: “There is far greater labor flexibility at German companies than people think. It is just that nobody has any interest in talking about it.” Union officials echo this view.
Meanwhile German unions have lost 40% of their membership since 1990. Today only about 20% of the workforce is unionized. Although-- because of sectoral bargaining-- about 68% of the workforce in the West and 53% of the workforce in the East is covered by a collective bargaining agreement. Of course, it’s important to note, that German unions still have considerable political clout and derive power from their mandated seats on corporate Boards of Directors.
Unions are beginning to adapt. “We have been slow to recognize this trend, but now we are trying to control the processes, ” says one IG Metal official. Another adds that with the shift away from sectoral to company level bargaining, “We have to activate our members and make them realize that the union [headquarters] cannot always come to the rescue.” IG Metal has launched membership consultation campaigns to help workers cope with the changing bargaining environment. According the FT these campaigns have resulted in some recent membership gains.
Has the concessionary bargaining worked? According to the FT, “Increased flexibility has done little to stem the decline in Germans employed in industry…. Companies involved in commodity products—such as Ina Schaeffler, a bearing manufacturer and Continental in tires—argue that no matter what level of flexibility is achieved, it is difficult to fight against lower-cost countries.”
Last year Continental asked and got a concessionary agreement with its workers that added 3 hours to the work week with no additional pay. A few months later the firm shut down one of its plants. The action caused a furor which may put a brake on some concessionary agreements. An official from the IG BCE union which represents Continental workers says “If this is allowed to set an example, then co-operation in Germany will not be possible any more between workers and companies.”
There is another angle to the Continental story: “More is at stake for Conti than just its operations in Germany. It is also trying to force through deep a restructuring of its US tire factory in Charlotte, North Carolina. ‘The unions in Charlotte are looking very carefully at what we do here and will pounce if we back down [over the closure plan], [a company] official says.”
On January 9, 2006, three days after the stories appeared in the Financial Times, Continental announced plans for the restructuring of its Charlotte plant. In our next post we will take a look at what the company has in mind for its unionized Charlotte workforce.
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