Social partners debate pay rises

According to a survey by the Cologne Institute for Economic Research, 55% of German companies expect an increase in production in 2011. While the economic upswing has not reached all sectors, some companies have announced plans to bring collectively agreed pay rises forward by two months so that employees can profit from the improved economic situation. The social partners are discussing the effects of such pay rises, and whether they could be more widely applied.

In autumn 2010, the Cologne Institute for Economic Research (IW) conducted a survey (in German, 72Kb PDF) of 1,800 companies. Among other questions, the survey asked firms to outline their business expectations for 2011. The results show that 55% of the businesses surveyed expect a rise in production and only 9% anticipate a decline in the next year. The improved business situation is illustrated by the widely publicised decision of several companies to bring forward collectively agreed pay rises.

Pay rises brought forward

During autumn 2010, companies such as the German car makers Porsche, Audi and Daimler, the truck producer MAN, the automotive group Continental, and the engineering and technical suppliers Siemens and Bosch all confirmed that they will start paying higher wages from February 2011 onwards.

Current pay agreements in, for example, the metal and electrical industry in Baden-Württemberg and North Rhine-Westphalia allow for rises of 2.7% from 1 April 2011. However, in early 2010 the social partners in this sector had included a clause allowing this date to be altered by two months through individual works agreements, giving companies a degree of flexibility to adjust collective regulations to their particular circumstances (DE1004029I).

Companies that have decided to use this instrument to pay their employees higher wages earlier than set out in the current agreement stress that their economic situation and order books have improved greatly since the economic downturn in 2009, and they want their staff to benefit from the economic upswing.

Wilfried Porth, Director of Labour Relations at Daimler AG, said in a statement (in German) in November 2010 that employees had made the firm’s success possible in the wake of the economic crisis. Similarly, Wolfgang Malchow, Bosch’s Director of Industrial Relations, , explained that, since the economic situation of the company had improved faster than expected, it was only fair to use the flexible components of the collective agreement in the staff’s favour.

While only a handful of companies have taken such steps, these announcements have sparked a debate among the social partners on the wider issue of pay rises in industry.

Debate among the social partners

After Siemens had announced in November 2010 its intention to bring forward collectively agreed pay rises for its employees, Berthold Huber, President of the German Metalworkers’ Union (IG Metall) welcomed the decision in a press release (in German) and called on other establishments in the sector to follow Siemens’ example.

Jörg Hofmann, spokesperson for the Baden-Württemberg branch of IG Metall, in a press statement (in German) also welcomed Bosch’s decision. He encouraged works council members in other companies to initiate negotiations in their establishments. On 30 November 2010, in an interview (in German) with the daily Stuttgarter Zeitung, he highlighted IG Metall’s intention to use such negotiations to send a positive signal to works council members in medium-sized and smaller firms. However, he also told the press that the economic upswing had not yet reached all firms or all sectors and it was therefore too early to judge whether pay rises could be brought forward across the board.

On 9 November 2010, Gerhard F. Braun, Chair of the Confederation of Business Associations in Rhineland-Palatinate (LVU), commented in a press article (in German) that Germany had just experienced the greatest economic downturn since the 1930s. The signs of economic recovery were good news but no reason to begin a debate about whether it should be reflected in the pay packets of workers across German industry. Martin Kannegiesser, President of the Employers’ Association for the Metal and Electrical Industry (Gesamtmetall) had already warned against high expectations in a statement (in German) issued on 31 October 2010, stressing that 32% of companies in the metal and electrical industry were either still in the red or were barely breaking even.

Finally, a press statement (in German) on 29 November 2010, Volker Schmidt, President of NiedersachsenMetall, the employers’ association for the metal and electrical industry in the state of Lower Saxony, emphasised that companies also had the option of postponing collectively agreed pay rises by two months. He highlighted that some companies were still short of orders and might have to consider putting employees on short-time hours. Whether, and to what extent, pay rises could be brought forward would depend on the economic situation of individual companies, and the decision would have to be made by each company’s management and works council.

Sandra Vogel, Cologne Institute for Economic Research (IW Köln)