Collective bargaining coverage in western Germany

A recent empirical study by the Institute for Employment Research found that in 1995 collective bargaining covered 61.6% of western German establishments and 83.1% of western German employees. This article examines the study, its background and its implications.

Collective bargaining in Germany

Collective bargaining may be defined as a collective decision-making process between parties representing the interests of the employer(s) and the employee(s), whose purpose is the negotiation and continuous application of a jointly agreed set of rules to govern the substantive and procedural terms of the employment relationship.

The legal background to collective bargaining in Germany is the concept of collective bargaining autonomy (Tarifautonomie, from the Greek autonomia- implying self-legislation) which describes the right of coalitions of employers and employees to regulate the terms and conditions of employment on their own responsibility and independently of any influence exercised by the state, and thus to determine the labour market constitution autonomously. Bargaining is protected by the German Basic Law and has the functions of:

  1. creating social and industrial peace by reconciling the conflicting interests of employers and employees (the "peace function");
  2. creating an order for the labour market (the "order function"); and
  3. protecting employees against the unilateral regulation of work by the employers (the "protective function").

German collective bargaining is relatively centralised and takes place mainly in the form of regional industry-level bargaining. Collective agreements are legally binding for all members of the negotiating parties. Formally, it is just the signatories and their members which are legally bound by the collective agreement but, as a result of the principle of equal treatment, employers usually apply the contracts to all workers within a company. At the request of one of the social partners, the Federal Minister for Labour and Social Order can declare a collective contract which covers not less than 50% of the employees to be generally binding on all the employees within that region and industry (a mechanism known as Allgemeinverbindlicherklärung, or extension of collective agreements).

Trade unions may conclude collective contracts with employers' associations (Verbandstarifverträge, or association-level agreement s), or individual employers (Firmentarifverträge, or company agreement s). There are three main types of collective contracts: pay agreement s; general agreements on pay grades; and framework agreements on employment conditions. In addition, hybrid forms and contracts concerning special issues, such as work organisation, exist. The decisions about issues, duration and level of negotiation are left to the social partners. During the period of validity of agreements, a peace obligation is imposed on the parties. Each year around 8,000 collective agreements are concluded. Collective bargaining is mainly conducted at regional industry level, but is - in certain industries - also quite frequent at national or company level.

Collective bargaining coverage

Since the 1960s, it has traditionally been (gu)estimated that in western Germany around 80% of all companies and 90% of all employees are covered by collective bargaining. However, in recent years this estimate has increasingly been challenged by some industrial relations specialists.

A recent empirical study by the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB), based on the IAB Establishment Panel (IAB-Betriebspanel) - "Betriebliche Determinanten der Tarifbindung: Eine empirische Analyse auf der Basis des IAB-Betriebspanels 1995", S Kohaut and L Bellmann, in Industrielle Beziehungen, 4 (4) 1997, pp. 317-334- has shed some new light on this issue. The study found that in 1995 collective bargaining covered 61.6% of west German establishments and 83.1% of west German employees. Furthermore: 53.4% of the establishments and 72.2% of the employees were covered by industry-wide collective agreements; 8.2% of the establishments and 10.9% of the employees were covered by company agreements; and 38.4% of the establishments and 16.9% of the employees were not covered by collective bargaining at all. Further details by sector are provided in the table below.

Collective bargaining coverage in western Germany (1995, selected industries)
Industry Industry-wide collective agreements Company collective agreement No collective agreement
Total 53.4 72.2 8.2 10.9 38.4 16.9
Coverage in % of total Establishments Employees Establishments Employees Establishments Employees
Agriculture and forestry 44.6 65.0 3.5 4.0 51.9 31.0
Mining and energy 89.3 81.7 5.2 16.1 5.5 2.2
Chemicals 74.6 88.3 3.1 3.2 22.3 8.5
Plastics and rubber 50.0 70.4 10.3 16.0 39.7 13.5
Machine construction 52.5 82.0 10.7 8.8 36.7 9.1
Automobiles 84.1 91.8 0.7 5.8 15.2 2.4
Ships and planes 100.0 100.0 0.0 0.0 0.0 0.0
Electrical engineering 43.4 80.5 7.2 7.7 49.4 11.9
Precision engineering 40.2 62.4 1.2 7.7 58.7 29.9
Paper processing and printing 60.1 83.6 16.4 5.3 23.4 11.1
Clothing and textiles 62.1 73.1 2.7 6.6 35.2 20.3
Construction 80.9 93.2 4.9 2.3 14.3 4.5
Trade and commerce 52.7 70.8 9.4 9.5 37.9 19.8
Transport and media 54.9 53.9 20.2 34.9 24.9 11.2
Credit and finance 93.3 95.3 0.2 3.7 6.5 1.0
Insurances 46.5 83.2 2.9 7.1 50.6 9.8
Other services 40.5 57.9 8.3 11.9 51.2 30.2
Churches 54.1 67.3 19.7 21.4 26.2 11.3
Non-profit organisations 49.8 61.6 11.3 21.8 38.9 16.6
Public administration 89.8 93.3 8.2 3.3 0.0 3.4
Social insurances 81.7 63.0 18.1 34.0 0.0 3.0

Source: Kohaut/Bellmann (1997).

The determinants of collective bargaining coverage are of interest. A regression analysis (model including industry-dummy variables) of the association between the collective bargaining coverage of private enterprise establishments as a dependent variable and several independent variables led to some interesting and significant results:

  • The higher the percentage of female employees in the workforce, the higher is the probability that establishments are covered by collective bargaining. An explanation might be that female employees prefer regulated collective industrial relations with agreed rules on the compatibility of working and family life.
  • The larger an establishment, the more likely it is to be covered by collective bargaining. Possibly, small and medium-sized enterprises are not content with the relatively high wages and rigid wage structures prescribed by collective agreements and therefore are less likely to conduct collective bargaining.
  • If there is a works council at the establishment, the probability is higher that the establishment is covered by collective bargaining.
  • New establishments are less likely to be covered by collective bargaining.
  • The larger the share of export in turnover, the lower is the probability that the establishment is covered by collective bargaining.

The last two cases might be explained by: the concern of companies to control their production costs and profits through individual action, especially in the critical starting phase of a new establishment/company: and the requirements to maintain and sometimes even to increase adaptability and flexibility in companies which are exposed to global competition.

No significant association has been found between the probability of being covered by bargaining and: the percentage of qualified employees in the workforce; the development of turnover in percent; recent company reorganisation; the level of technology; and returns/profits.

Commentary

The IAB study shows that collective bargaining coverage, at of 62% of western German establishments and 83% of west German employees, is lower than the traditional (gu)estimates of 80% of companies and 90% of employees. Taken together with the recent empirical findings on collective bargaining coverage in eastern Germany (DE9708128F), two sets of questions are raised by the new study:

  1. How has the coverage and structure of the German collective bargaining system developed in time? What are the determinants of these changes?
  2. What do personnel management and industrial relations look like in the companies which are not covered by collective bargaining? Are German collective industrial relations also declining, a trend which has already been observed and examined in countries associated with the "Anglo-Saxon" model of industrial relations?

The phenomenon of non-collective industrial relations in western Germany - it almost certainly also exists in eastern Germany - has not yet attracted much attention. Little is known about establishments and workplaces which are neither covered by a trade union nor by collective bargaining. However, as the decentralisation and decline of collective bargaining continues, more research on workplaces such as, for example, betting shops and temporary work agencies (DE9711138F) is needed to investigate the possibly growing sector of bargaining "black holes". (Stefan Zagelmeyer, IW)

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