Works council members prefer sectoral agreements

Dribbusch, Heiner

Overview

Article

Works council members prefer sectoral agreements

Published: 28 October 2003

The German collective bargaining system is current under debate. In its 2003 Economic Report, published in July 2003, the Federal Ministry of Economics and Labour (Bundesministerium für Wirtschaft und Arbeit) underlines the intention of the 'red-Green' federal government to review collective bargaining law in order to enable more flexibility in pay and conditions at company level. The Ministry wants to see collective agreements structured in such a way as to make it easier to deviate at company level from the standards laid down in sectoral collective agreements. Although the government recognises that trade unions in particular have been committed to negotiating appropriate 'opening clauses' (see below) with employers, the Ministry repeats in its report the statement made in parliament by Chancellor Gerhard Schröder on 14 March 2003 (DE0303105F [1]) that the government will consider new legislation in the event of this commitment not being put into practice to an extent that the government considers sufficient for the needs of employers.[1] www.eurofound.europa.eu/ef/observatories/eurwork/articles/chancellor-proposes-agenda-2010-to-revive-economy

In its 2003 Economic Report, published in July 2003, the German Federal Ministry of Economics and Labour underlines that the government is reviewing the law on collective bargaining in order to enable more flexibility in pay and conditions at company level. The idea is to allow for further decentralisation of collective bargaining from sector to company level. However, opponents point out that, while sectoral collective agreements are still the norm in Germany, most already contain 'opening clauses' allowing for specific company-level deviations from their provisions. Furthermore, recently published findings from the third WSI works and staff council survey indicate that the majority of members of works councils do not want a further decentralisation of bargaining.

The German collective bargaining system is current under debate. In its 2003 Economic Report, published in July 2003, the Federal Ministry of Economics and Labour (Bundesministerium für Wirtschaft und Arbeit) underlines the intention of the 'red-Green' federal government to review collective bargaining law in order to enable more flexibility in pay and conditions at company level. The Ministry wants to see collective agreements structured in such a way as to make it easier to deviate at company level from the standards laid down in sectoral collective agreements. Although the government recognises that trade unions in particular have been committed to negotiating appropriate 'opening clauses' (see below) with employers, the Ministry repeats in its report the statement made in parliament by Chancellor Gerhard Schröder on 14 March 2003 (DE0303105F) that the government will consider new legislation in the event of this commitment not being put into practice to an extent that the government considers sufficient for the needs of employers.

If the government were to favour the 'relocation' of collective bargaining from sector to company level by way of legally allowing works councils to conclude collective agreement s - a right currently solely granted to trade unions - this would substantially change the German collective bargaining system.

The German Confederation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) has warned the governing coalition of the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) and Alliance 90/The Greens (Bündnis 90/Die Grünen) not to undermine collective bargaining autonomy by trading-off the bargaining monopoly of trade unions in its talks with the parliamentary opposition - the Christian Democratic Party (Christlich Demokratische Union, CDU), its Bavarian counterpart, the Christian Social Union (Christlich Soziale Union, CSU) and the Free Democratic Party (Freie Demokratische Partei, FDP) - about the future of the German social benefit system. The Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), while defending collective bargaining autonomy in principle, believes that more leeway is needed for actors at company level to shape conditions to the specific needs of employers (DE0307107F).

The results of the third works and staff council survey conducted by the Institute for Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut in der Hans Böckler Stiftung, WSI) (DE0306201F), recently made available in English ('Industrial relations in Germany - an empirical survey', WSI-Mitteilungen, Special Issue 2003), indicate that there is already almost no sector that does not operate 'opening clauses' (Öffnungsklauseln) which allow specific deviations at company level from the standards laid down in the sectoral collective agreement. Furthermore, the WSI survey found that most works council members are very sceptical about a further decentralisation of collective bargaining, preferring binding sectoral collective agreements, and would welcome the introduction of a statutory minimum wage.

Sectoral agreements and opening clauses

Collective agreements cover around 48% of establishments and around 71% of employees in western Germany, and 28% of establishments and 56% of employees in eastern Germany. The sector-wide collective agreement is by far the predominant form of collective agreement in the German bargaining system - see table 1.

**Table 1. Coverage of employees by collective agreements in western and eastern Germany, 2001 (%)**
Sector	Sectoral collective agreement		Company-level collective agreement		No collective agreement (of which, 'orientation' towards a collective agreement)
Sector	West	East	West	East	West	East
Agriculture etc	56.4	19.9	2.6	8.2	41.0 (24.7)	71.9 (50.7)
Mining/energy	84.1	76.5	12.7	17.8	3.2 (65.6)	5.8 (64.3)
Raw material processing	69.6	41.8	9	14.3	21.4 (67.2)	43.9 (54.8)
Capital goods	63.9	29.1	9.3	14	26.8 (67.4)	56.9 (57.4)
Consumer goods	68.7	31.4	7.7	14.1	23.5 (59.0)	54.5 (52.8)
Construction	77.6	43	3	8.5	19.4 (61.2)	48.6 (68.3)
Trade/repair	66	36.3	4.7	7.8	29.3 (57.9)	55.9 (47.9)
Transport/communications	57	24.1	17.5	39	25.5 (41.1)	36.8 (63.6)
Banking/insurance	86.3	86.7	5.4	0	8.3 (61.2)	13.3 (39.1)
Services for companies	32.2	36.9	6.4	5.9	61.5 (36.1)	57.2 (43.0)
Other services	60.5	44.8	6.5	10.7	33.0 (56.5)	44.5 (59.7)
Non-profit institutions	45.2	34	11.4	18.3	43.4 (60.8)	47.7 (64.6)
Authorities/social insurance	83.6	89.3	11.4	9.4	5.0 (47.8)	1.4 (56.9)
Total	63.1	44.4	7.6	11.8	29.3 (52.2)	43.8 (55.3)

Source: IAB establishment panel, 9th wave western Germany/6th wave eastern Germany, 2001.

There is, however, a strong element of decentralisation within the German bargaining system, in so far as there is almost no sector that does not operate collectively agreed 'opening clauses'. According to the third WSI works and staff council survey, 35% of works councils say that the employer makes use of opening clauses in their establishments. By far the most important area of application is that of flexible working time arrangements, as reported by over two-thirds of all works councils in companies with functioning clauses of this kind. Some 41% of these private sector companies make use of these clauses to extend working time and 24% use them for temporary working time reductions. This reflects the fact that in the area of working time the collective bargaining parties have gradually extended the room for manoeuvre at company level, allowing a significant number of companies to make use of various options. When it comes to pay issues, however, the collectively negotiated provisions at sectoral level enjoy clear priority (in particular in the area of collectively agreed basic pay), and deviations at company level based on opening clauses are still seen in only a small minority of cases - see table 2 below

Table 2. Areas of application of opening clauses at company level*
Area of application	Private sector	Public sector
Variable working time	70	68
Extension of working time	41	16
Temporary working time reduction	24	50
'Entrance pay' for newly-hired employees	17	14
Reduction or postponement of annual bonuses	15	15
Postponement of collectively agreed pay increases	10	3
Reduction or postponement of holiday pay	9	4
General 'hardship clause'	7	8
Reduction of collectively agreed basic pay	6	6

* As % of all works councils in establishments that make use of opening clauses.

Source: WSI works and staff council survey 2002 (3rd survey).

Alongside collectively agreed opening clauses, the emergence of so-called company 'pacts for employment and competitiveness' since the 1990s (DE9902293F) signals the advent of a new form of company-level industrial relations that underpins the trend towards decentralisation of collective bargaining. The general focus of these agreements is on a process of in-house bargaining in which the employees make certain concessions in the area of working time or pay in return for a (generally limited) employment guarantee.

In the third WSI survey, 29% of works councils say that they have concluded a company pact for employment and competitiveness. At 46%, the figure for large companies (with over 1,000 employees) is well above the average, and the percentage tends to decline in accordance with firm size. Company pacts are especially common in the industrial sectors as well as in transport/communications and banking/insurance. In contrast, company pacts are clearly under-represented in the retail trade as well as in other private service sectors.

Assessment by works councils

The majority of members of works councils remains sceptical about the process of decentralisation of collective bargaining, according to the WSI survey, and it is interesting to note that the percentage of those assessing the decentralisation as 'generally problematic' has increased to a greater extent than the still rather small number of those who welcome this process - see table 3 below.

**Table 3. Decentralisation of collective bargaining, assessment by members of works councils I (responses of members in %)**
The decentralisation of collective bargaining ...	Members of works councils
The decentralisation of collective bargaining ...	1997/8	1999/2000	2002
... is to be welcomed	12	10	14
... is ambiguous	40	33	38
... is generally problematic	37	39	42
... is hard to assess/no answer*	12*	13*	6**

Source : WSI works and staff council surveys 1997/8, 1999/2000 and 2002 (1st, 2nd and 3rd surveys).

In addition to providing a general assessment, works council members were asked to give a differentiated opinion based on pre-set answers - see table 4 below. The responses further underline the sceptical/negative basic attitude of the members. The great majority of respondents believe that the relocation of collective bargaining to company level strengthens the position of the employer and a notable 34% believe that decentralisation overtaxes works councils.

**Table 4. Decentralisation of collective bargaining, assessment by members of works councils II (responses of members in %)**
Decentralisation of collective bargaining...	2nd survey	3rd survey
Decentralisation of collective bargaining...	1999/2000	2002
... better takes into account the different conditions at establishment level	25	25
... leads to different work and pay conditions for employees covered by the same collective agreement	54	55
... increases the influence of works and staff councils	19	23
... strengthens the position of employers to assert their interests	72	67
... does not give works and staff councils an effective influence	30	35
... overtaxes works and staff councils	No answer	34
... other	6	No answer

Source: WSI works and staff council surveys 1999/2000 and 2002 (2nd and 3rd surveys).

The survey indicates that the majority of works council members do not want that the German system of collective bargaining to be more decentralised - a conclusion that is underpinned by their assessment of the legal instrument of extension of collective agreements (TN0212102S). One in two works councils would like to see greater use made of this instrument, by which collective agreements are effectively declared generally binding for all companies within a specific economic sector. Works councils in eastern Germany are more frequently in favour of more widespread use of this instrument than their colleagues in western Germany. A breakdown of the figures by sector shows that transport/communications (68%), construction (64%) and retailing (62%) record well above-average scores in terms of preferring greater use of extension.

There is no general statutory minimum wage in Germany (TN0208101S) and the views amongst trade unions on whether one should be introduced differ widely (DE9911221N), but according to the WSI survey four out of five works councils (82%) describe the introduction of a statutory minimum wage as a flanking measure for bargaining policy as 'a good idea'. Fewer than 10% do not think this is a good idea, and 7% of works councils 'don't know'. The most positive assessments of a statutory minimum wage are found in construction (88%) - a sector where the collectively agreed minimum wage is legally extended to the whole industry (DE0306207T) - consumer goods (86%) and capital goods (85%).

Commentary

The 2003 Economic Report from the Federal Ministry of Economics and Labour indicates that the government is seriously considering major alterations to current collective bargaining law which might lead to a further decentralisation of collective bargaining. Whatever the government's reasons are, it cannot claim that this move would be welcomed by a majority of works councils. There is already a widespread use of collectively agreed opening clauses, and in a considerable number of companies so-called pacts for employment and competitiveness exist. Taking into account the balance of power as it exists in most companies, works councils would prefer tighter regulation of pay and conditions rather than a further relocation of collective bargaining to company level. (Heiner Dribbusch, Institute for Economic and Social Research, WSI)

Eurofound recommends citing this publication in the following way.

Eurofound (2003), Works council members prefer sectoral agreements, article.