1997 Annual Review for Germany

This record reviews 1997's main developments in industrial relations in Germany.

Introduction

According to the Federal Statistical Office (Statistisches Bundesamt), German real GDP grew at a rate of 2.2% in 1997. As regards the Maastricht convergence criteria, the budget deficit reached 2.7% of GDP, whereas public debt amounted to 61.3% of GDP. On average, unemployment stood at 11.4% of the civilian labour force - 9.8% in the west and 18.1% in the east. Inflation, as measured by the consumer price index, amounted to 1.8%.

The Federal Government is currently a coalition led by the Christian Democratic Union (Christlich Demokratische Union, CDU) and its Bavarian counterpart, the Christian Social Union (Christlich-Soziale Union, CSU), along with the Free Democratic Party (Freie Demokratische Partei, FDP). General elections are to be held in 1998.

Key trends in collective bargaining and industrial action

Since the number of unemployed people increased by around 420,000 to an average of 4.4 million in 1997 (DE9801246N), collective bargaining was overshadowed by the question of how to preserve or create employment. Against this background, the social partners displayed significant differences in their economic and political strategies, leading to a broad and at times controversial debate on pay policy, working time policy and the future of the German system of branch-level collective agreements. In addition, two very important individual collective bargaining issues were continued payment of remuneration in the event of sickness and partial retirement.

According to figures from the collective agreement s archive of the Institute for Economics and Social Science (Wirtschafts- und Sozialwissenschaftliches Institut, WSI), collectively agreed basic wages and salaries in western Germany rose on average by about 1.4% in 1997 (DE9802250N). Since the inflation rate was 1.8% over the year, employees in reality experienced an average decrease in real wages of about 0.4%. In comparison with 1995 and 1996, there was a continuing decline in wage increases from an average 3.6% increase in 1995 down to 2.3% in 1996 and 1.4% in 1997. In eastern Germany, collectively agreed basic wages and salaries rose on average by about 2.7% in 1997, compared with 5.0% in 1996 (WSI figures). In the meantime, eastern average basic wages and salaries have reached about 89.2% of the western levels. However, since eastern Germany has lower annual bonus payments and longer working hours, the actual income gap between east and west Germany is still wider. According to the German Federal Reserve (Deutsche Bundesbank), on an hourly basis, in 1997 collectively agreed wages increased at a rate of 1.2% in the west and 2.7% in the east.

In all, about 47,300 collective agreements were officially registered by the Ministry of Labour in 1997 (compared with 45,000 in 1996). Against the background of persistent mass unemployment there were some rather controversial debates on pay policy among the social partners (DE9711236F). Trade union leaders declared that the very moderate pay increases of recent years had not led to new employment, and thus called for an "end of modesty" (Ende der Bescheidenheit) in pay, which should increase purchasing power and help to improve domestic demand. By contrast, the employers' associations' strongly demanded a continuation of moderate pay policy in order to achieve a further reduction of labour costs. In addition, the employers called for a more differentiated wage structure and an extension of the low-wage employment sector.

In autumn 1996, the Government passed a new law which reduced the statutory level of continued payment of remuneration in the event of sickness from 100% to 80% of previous income. Therefore, continued payment of remuneration became a major issue in the 1997 collective bargaining round. Eventually, the trade unions were able to enforce 100% continued payment in most collective bargaining units. However, in exchange the unions made various concessions to the employers and accepted, for example, further cuts in annual bonuses (DE9709131F).

Partial retirement became a major new issue for collective agreements in the 1997 collective bargaining round (DE9708224F). Against the background of increasing mass unemployment, partial retirement is seen as an instrument to avoid redundancies or even create new jobs for young job-seekers. Under the 1996 Partial Retirement Law (Altersteilzeitgesetz), the state provides financial support if employees aged 55 and over voluntarily reduce their working time to 50% of normal hours and the resulting vacancy is filled by an unemployed person or a trainee. If the employer pays the employees concerned 70% of former full-time remuneration and pays pension contributions on the basis of 90% of former full-time remuneration, the additional expenses are borne by the state. Implementation of the scheme requires either a collective agreement, a works agreement or an individual contract between employer and employee. At the end of 1997, agreements on partial retirement had been concluded in about 15 sectors and in various companies, all in all covering about 5 million employees (DE9710133F). Most collective agreements on partial retirement provide for topping up the statutory payments to 85% of former net full-time income.

Since the beginning of the 1990s, the German system of branch-level collective bargaining has been under increasing pressure from employers demanding more company-specific regulations on working conditions. As a reaction, in recent years the collective bargaining parties have concluded more and more "opening clauses" in branch-level agreements, which allow companies, to a certain extent, to diverge from collectively agreed standards (DE9709229F).

In 1997, the bargaining parties continued with a further differentiation and decentralisation of branch-level collective agreements. Perhaps the most important example was the introduction of a new opening clause in the national framework pay agreement for the west German chemicals industry in June 1997 (DE9706216F). The new opening clause means that companies are able to reduce the collectively agreed wage by up to 10% for a limited period of time, in order to safeguard jobs or to improve competitiveness. While the employers welcomed the chemicals agreement as an innovative step for more flexibility, the agreement led to a controversial debate among other trade unions. However, 1997 saw similar agreements concluded only in the east German construction industry (DE9707126N).

At the end of 1997, the bargaining parties in the metalworking industry published their proposals for further reforms of branch-level collective agreements and, in the meantime, started joint negotiations on the issue (DE9712240F). Since metalworking industry is still the most important collective bargaining sector and still represents the notion of the "German model", the outcome of these negotiations will have an major impact on the future of German collective bargaining.

Industrial relations, employment creation and new forms of work organisation

Against the background of rising unemployment, the debate on part-time work, working time, labour market flexibility and deregulation continued in 1997. The most important initiatives by the Government to reform the labour market, which had an impact on German industrial relations in 1997, were the following.

• The Partial Retirement Law (Altersteilzeitgesetz) which came into effect on 1 August 1996 and supports the gradual transition of older employees to retirement under certain conditions (see above). In 1997, there were a number of collective and works agreements concluded on the basis of the new law (DE9710133F).
• The Labour Law Act on the Promotion of Employment (Arbeitsrechtliches Beschäftigungsförderungsgesetz) which came into effect on 1 October 1996 and includes the easing of redundancy provisions, the reduction of the statutory level of continued payment of remuneration in the event of sickness, and improved possibilities for fixed-term employment contracts. In 1997, there were many collective agreements concluded on the basis of the new law, especially regarding the continued payment of remuneration (DE9709131F) - see above.
• The Employment Promotion Act (Arbeitsförderungsgesetz) which came into effect on 1 April 1997 and includes measures for the promotion of employment among disadvantaged groups, support for the foundation of new firms, and restrictions on job-creation schemes.
• The Act on Temporary Employment Businesses (Arbeitnehmerüberlassungsgesetz, AÜG) which came to effect on 1 April 1997 and includes the relaxation of the legal regulation of work through temporary work agencies (DE9711138F).

As in previous years, the social partners and the Federal as well as the regional state (Land) Governments discussed the issue of preserving and creating employment. Employment alliances and pacts have been concluded at all levels (except the national level) to avoid redundancies, and sometimes even to create new jobs. These have ranged from regional or sectoral tripartite or bipartite employment alliances or pacts, to company-level agreements between management and works councils or trade unions. Some agreements take the form of declarations of intent, others of legally-binding collective or works agreements. Exact figures on employee coverage and on the number of agreements are not available. The whole of eastern Germany (DE9706117F) and Bavaria are covered by regional employment alliances. Furthermore, there are many industry- and company-level alliances in the private and the public sector. At regional level, the intention was to stop the increase in unemployment, to reduce unemployment and/or to create new jobs. The sectoral agreements aim at avoiding redundancies, and in some cases at creating jobs. Company-level alliances, be they collective or works agreements, mostly intend to avoid redundancies. Such agreements were, for example, concluded in 1997 at Bayer AG (DE9706220N), Deutz AG (DE9705112N), Mohn (DE9705214N), Ford Germany (DE9704209N) and Mercedes Benz (DE9703105N).

As regards working time organisation, the Ministry of Labour and Social Affairs reports a further flexibilisation by the increased use of "working time accounts" and annual working hours. A study on working time organisation recently published by the Institut für Arbeit und Technik ("Beschäftigungssicherung und Neueinstellungen durch neue Arbeitszeitmodelle?", Christiane Lindecke and Steffen Lehndorff (eds), Graue Reihe des Instituts für Arbeit und Technik 1997/92) showed that a large majority of employees were still working under traditional working time systems (including regular shift work, flexitime with daily presence at work and long core hours). However, many systems were complemented with elements of flexibility through collective or works agreements. These included the permanent extension of working time, working time reductions by the use of free shifts or days off, and the introduction of working time accounts. Many agreements make Saturday a regular working day without any additional payments. Furthermore, working time "corridors" exist, as in the chemicals industry. The study also reports the phenomenon of working time increases which violate collective agreements in force. Lastly, many businesses were adjusting their working and production time to fluctuations in product demand and customer frequency.

In 1997, there were numerous collective and works agreement s concluded on the issue of working time flexibility - an example being Siemens (DE9710136N). As in other European countries, the debate on working time flexibility as a means of increasing employment is gaining ground (DE9709127F).

After Klaus Zwickel, the leader of the IG Metall trade union, proposed a 32-hour week in April 1997 (DE9704208F), Germany experienced a broad debate on working time. Trade unions sought a further working time reduction as a tool for the better redistribution of work and the creation of new employment. Employers rejected the demand for a general working time reduction and, instead, demanded more working time flexibility. Some employers even tried to achieve an extension of working time. In 1997, a growing number of so-called "company pacts" between works councils and management included an (mostly unpaid) extension of working time - see, for example, the examples of Ravensburger (DE9708228N) or Continental (DE9707222N). Furthermore, a new collective agreement for journalists on daily newspapers cancelled the previously agreed introduction of the 35-hour week (DE9712242N).

Developments in representation and the role of the social partners

European integration has a growing influence on developments in German industrial relations, since it redefines more and more the economic, political and sometimes even social constraints. One prominent example of this is the introduction of European Works Councils (EWC). EWCs have always been strongly supported by the German trade unions, and after the adoption of the EU Directive in 1994, most of those German employers which had formerly opposed this development gave up their resistance. Approximately 330 German-based companies are directly affected by the Directive, of which about 100 had already established a EWC by the end of 1997.

In comparison with German works council s, the rights and opportunities of EWCs are rather limited. Therefore, German trade unions have already demanded various improvements when the EU Directive is reviewed in 1999. German employers' associations, on the other hand, do not want to expand the tasks of EWCs.

Recently, there have been some controversial discussions on the new proposals for a European Company Statute and its European system of worker involvement, revived by the 1997 "Davignon report" (EU9705128N). In particular, the German trade unions are afraid that the introduction of a European Company Statute could lead to an undermining of German co-determination rights on the supervisory board s of companies.

Since the early 1990s, both trade union and employers' organisations have had growing problems in keeping their membership. This is true, particularly, for the affiliated unions of the German Confederation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) which lost about 2.8 million members, or 24% of total membership, between 1991 and 1996 (DE9710233F). Although equivalent data are not available for the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), recent studies have found that membership in BDA-affiliated employers' associations is declining, in particular in eastern Germany. For example, the number of organised companies in east German manufacturing had decreased from 36% in 1993/4 to 25% in 1996 (DE9708128F). The reasons for this membership decline are manifold. On the trade union side, the main reasons might be growing unemployment and structural changes in the economy and at the workplace, while on the employers' side one main reason might be that more and more companies feel dissatisfied with branch-level collective bargaining policy. The organisational changes among the social partners' organisations must also be seen against the background of their growing membership problem.

In autumn 1997, Germany saw a wave of trade union mergers, reducing the number of DGB affiliates from 15 to 11 unions (DE9710233F). The miners' union (IG Bergbau und Energie), the chemical workers' union (IG Chemie-Papier-Keramik), and the leather workers' union (Gewerkschaft Leder) founded a new joint union - the Mining, Chemicals and Energy Union (Industriegewerkschaft Bergbau, Chemie, Energie, IG BCE). Furthermore, the textiles and clothing industry workers' union (Gewerkschaft Textil-Bekleidung) and the union for workers in the wood and plastics industries (Gewerkschaft Holz und Kunststoff) have decided to integrate themselves into the metalworkers' union, IG Metall. Finally, six unions in the service sector signed a joint declaration in 1997 which stated the need for further restructuring between trade union organisations, and may finally lead to further union mergers.

Some employers' associations reacted to growing membership problems by founding new associations which will neither conclude nor be bound by branch-level collective agreements (DE9712142N). The companies which become members of the new employers' associations are free to develop their own collective bargaining policy.

Industrial relations and the impact of EMU

It is accepted that the introduction of EMU from 1999 will have a significant impact on German industrial relations. All main social partner organisations are supporting EMU because they believe that the country's export-oriented economy will gain from a stable exchange rate mechanism.

However, the introduction of EMU will also intensify international competition, which might put pressure on German collective bargaining. Therefore, German trade unions have called for a "Europeanisation" of collective bargaining through the extension of European social minimum standards and a stronger coordination of bargaining policy at European level. In 1997, for example, IG Metall started to establish transnational bargaining networks and invited foreign trade union colleagues to participate to some extent in German collective bargaining (DE9707223N).

For their part, German employers' associations are still rejecting the need for a collective bargaining system at European level. In a statement on wage policy under the conditions of the EMU, the BDA stated that, since developments in productivity and economic performance will continue to be different among the European countries, collective bargaining should also remain at national level.

Conclusions and outlook

Developments in German industrial relations in 1998 may be overshadowed by the general elections in September 1998, which might polarise the political and economic debates among the social partners. On the one hand, the employers are demanding further reductions of labour costs, more flexibility in working time and conditions and a further decentralisation of collective bargaining. On the other hand, the trade unions seek a U-turn in pay policy, with higher wage increases, further steps in reducing working time and a stabilisation of branch-level collective agreements.

Against this background, major joint activities or initiatives by the social partners are very unlikely at least until election day. Afterwards there might be a chance for a renewal of 1996's failed national "Employment Alliance" (Bündnis für Arbeit). This could be the case, in particular, if the SPD comes to power after 16 years of opposition. The SPD candidate for chancellor, Gerhard Schröder, has already announced that he sees the renewal of an "Employment Alliance" as one of his priority tasks.

Regarding collective bargaining, it can be expected that the unions will go for a - perhaps rather slight - "end of modesty" in wage policy. So far, trade union demands for the 1998 bargaining round lie between 4% and 5%. The most important bargaining areas will be public services and the chemicals industry, which both might become trend-setters for wage settlements in 1998.

Finally, the current debates on the future of German branch-level collective agreements will continue. The recent negotiations in metalworking on a reform of the bargaining system will have a major impact also for other sectors. If the negotiations fail, the current process of creeping erosion of branch-level collective agreements is likely to continue. Therefore, it is now the responsibility of the social partners to find new compromises in order to modernise the current bargaining system, as well as to defend branch-level collective agreements against breaches at company level.

(Thorsten Schulten, WSI, and Stefan Zagelmeyer, IW)