The erosion of employers' associations and industry-level bargaining in eastern Germany

A new survey, published in June 1997, shows that in eastern Germany the "German Model" of industrial relations, characterised by its encompassing organisations on both sides of the labour market and its relatively centralised industry-level collective bargaining system, is in the process of erosion. The membership density of the traditional employers' associations is steadily declining, enterprises increasingly pay less than the collectively-agreed wages, and the locus of the collective bargaining system is continually shifting from the branch to the enterprise level.

Membership of German employers' associations

The German "model" of industrial relations is often characterised by its encompassing organisations on both sides of the labour market and its relatively centralised industry-level collective bargaining system.

There are more than 1,000 German employers' association s affiliated to the peak association, the Confederation of German Employers' Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA). Membership of BDA-affiliated associations is voluntary for enterprises. The extent to which an employers' association organises a constituency is measured by membership density, according to either the number of member companies in relation to the number of all companies in that constituency, or the number of employees in member companies in relation to all employees in that constituency. Since quantitative information on membership density of the BDA-affiliated associations is not available, it has long been estimated that they cover 60% of enterprises and 80% of employees in the western German private sector.

For eastern Germany, three surveys, conducted in winter 1993/4, spring 1995 and autumn 1996 by the Deutsche Institut für Wirtschaftsforschung (DIW), the Institut für Weltwirtschaft (IfW) and the Institut für Wirtschaftsforschung Halle (IWH), provide figures on the development of the membership densities of employers' associations in eastern Germany.

Data source: DIW

From 1993/4 to 1996, the membership density of the employers' associations decreased from 36% to 25% of companies, covering 74% and 56% of employees, respectively. Membership density in the craft industries is considerably lower. Companies which were owned by western German or foreign companies were more likely to be members than original eastern German companies. In 1996, in manufacturing the sectoral membership density (companies) ranged from 9% (textile and clothing) to 63 % (stone and earth products). With regard to the employees working in member companies it varied from 17% (printing) to 78% (stone and earth products). However, even considering developments at industry level, with only a few exceptions almost all figures have steadily decreased since 1993/4. Furthermore, the 1996 survey shows that of those companies which are members of employers' associations, roughly one-third consider quitting, which may be interpreted as an indicator of the discontent of members with their associations.

Recent trends and developments in eastern collective bargaining

German collective bargaining is relatively centralised and takes place mainly in the form of regional industry-level bargaining. The link between employers' associations and collective bargaining is as follows: to be able to participate in multi-employer collective bargaining, an enterprise has to be member of an association meeting the legal conditions for being a collective bargaining partner according to the Act on Collective Agreements (TVG). Collective contracts are legally binding for all members of the negotiating parties (§4 TVG). Trade unions may conclude collective contracts with employers' associations (Verbandstarifverträge- association-level agreement s), or individual employers (Firmentarifverträge- company agreement s).

An important indicator of the flexibility within a collective bargaining system is the "wage gap", ie the difference between collectively-agreed wages and effective wages. The wage gap indicates the extent to which the industry collective contracts set a wage floor and how far individual employers deviate from that level or - from another perspective - how far the employers' associations are able to make their deals stick. For eastern Germany, the extent of positive and negative wage gap can be quantified:

Data source: DIW

In autumn 1996, 59% of eastern German enterprises, representing 77% of eastern German employees in manufacturing were paying workers either in accordance with the industry-wide contracts, or more than this level. Whereas in 1993/4, 35% of companies (covering 12% of employees) were paying below the wage level set by the industry-wide contracts, this figure rose to 41% of the companies (covering 23% of employees) in 1996. In all years, original East German enterprises were more likely to pay below the industry level than companies owned by West Germans or foreigners, probably because the latter were able to draw on western capital and technology and thus had a higher level of productivity, allowing them to pay higher wages.

Until unification, the phenomenon of Tarifflucht(flight from collective agreements) - member companies of employers' associations illegally falling below the terms and conditions of employment fixed in collective contracts, often with the tacit permission of the trade unions - had not been known in German industrial relations. The surveys of 1995 and 1996 provide information for calculating the extent of Tarifflucht. In 1996, 14% of the members of employers' associations were paying less than collectively agreed. In 1995, the figure was 6.8%. As a consequence of this Tarifflucht, the employers' associations face a thorny dilemma. On the one hand, they would like to organise as many companies as possible, and make their contracts stick. On the other hand, if they use sanctions to penalise companies that "breach the contract", they may lose members, and may finally dissolve.

Besides the erosion of the employers' associations, which also indicates the erosion of industry level bargaining, a further indicator for the insidious decentralisation of collective bargaining is the increase in the total number of companies which conduct single-employer bargaining only. According to figures provided by the Federal Ministry for Labour and Social Affairs (Bundesministerium für Arbeit und Sozialordnung), the total number of such companies in eastern Germany has increased from 600 in 1990 to 1,600 in 1996. This trend might reflect the emergence of two types of relations between management and works councils at company level: (1) a "partnership of fate" within marginal enterprises; and (2) an "unholy alliance" in the new, highly profitable "cathedrals in the desert".

Possible causes of the trends observed

The erosion of employers' associations, the increase of the Tariffluchtand the rise in company-level bargaining are closely interrelated. As regards the interpretation of the decreasing membership density rates, there are various lines of argument: the decreases may be due to companies quitting, companies going out of existence, and increasing numbers of new companies being reluctant to join. Since there is no systematic and quantitative comprehensive analysis on membership density of employers' associations available, this issue has to be subject to speculation and ad hoc explanations. The trends observed may derive from different sets of problems:

1. Excessively high wages agreed in industry level-bargaining. According to the 1996 survey, 60% of all enterprises consider that labour costs are too high. This causes discontent with the associations among members. Collectively-agreed wages policies - such as the speedy alignment of eastern German wages to western German level - that companies cannot afford, are not an incentive to join an employers' association and to participate in industry-level bargaining.
2. The heterogeneity of interest of companies with regard to industrial relations. The differentiated behaviour of companies towards employers' associations and collective bargaining may be a result of the heterogeneity of eastern German companies in terms of productivity, capitalisation, technology, management approaches and cultures, experiences and expectations, as well as different product and labour market conditions (eg market structures, prices, wages). For example, there are huge productivity differences between the greenfield sites of western German as well as between foreign investors and most of the original east German enterprises. On average, unit labour costs are far higher in eastern than in western Germany. The resulting differences in interest and in ability to pay make it more difficult to organise employers.
3. The transfer of the western German model to eastern Germany. Although the institutionalisation of employers' associations - their foundation and integration into the German industrial relations system - was already completed by the end of 1992, strong tension remains. Certain policy mistakes have contributed to the discontent of the employers. First, the transfer of the western system of associations to the "five new states" was basically organised by western associations and their staff, which were soon suspected of acting in the interest of western industry. Second, immediately after unification, most of the employers' associations concluded collective wage contracts which included the alignment of wages and pay parity within a few years, regardless of the conditions of the member companies.
4. Companies using eastern Germany as a testing ground for new forms of flexible and innovative industrial relations. There are some companies which are members of employers' associations in the West, but did not join in the East. Examples are Gruner und Jahr (a publishing house), Opel Eisenach (car industry), a subsidiary of General Motors, and DuMont-Schauberg (a publishing house).
5. Changes concerning the counterparts and addressees of collective action. Changes such as shifts in trade union power resulting from declining levels of union membership or the emergence of powerful works councils, may have contributed to the erosion of the associations.

Commentary

The observed continuing erosion of the employers' associations and industry-level bargaining in eastern Germany might - in the long run - have far-reaching consequences for the German system of industrial relations, especially if the trends observed also spread to western Germany:

First, the process of decentralisation of the collective bargaining structure may lead to a fragmentation and diffusion of the bargaining system. This in turn might lead to a shift of industrial conflict from the industry level down to the company level, and changes in the power relationships between management and the trade unions, as well as between the trade unions and the works councils. In a fragmented bargaining system, unions will be able to negotiate with different companies at different points in time. All this may, but does not necessarily need to, seriously affect social peace, social partnership and the stability of the German industrial relations system. However, on the other side, a more decentralised bargaining system might also increase the flexibility and adaptability of companies and management - trade unions and works councils permitting.

Second, a continuing decline of the employers' associations might finally lead to the BDA-affiliated associations loosing their encompassing nature. First signs of such a trend are the breakaway of some eastern German regional employers' associations in the construction sector from their branch-level peak organisations (DE9703106N). Already today, employers' associations in eastern Germany are by no means encompassing. This might seriously affect the performance of the functions of the encompassing employers' associations within the German social market economy - in the self-governing institutions, for example. Coordinated bargaining and the extension of collective agreements might no longer be possible.

In order to maintain their encompassing nature and their functions in the German social market economy in changing economic and social environments, German employers' associations have to adapt to the changing demands and needs of their constituencies - which, especially since unification, are increasingly heterogeneous. The means to achieve this are continuously to review and update the range of "collective goods" and the selective incentives provided by the associations, as well as to provide effective internal mechanisms for voicing members' views. (Stefan Zagelmeyer, IW)

References

Bundesarbeitsblatt, Bundesministerium für Arbeit und Sozialordnung, several issues.

"Lage und Perspektiven der Unternehmen in Ostdeutschland", Deutsches Institut für Wirtschaftsforschung,, Berlin, June 1997.

"Gesamtwirtschaftliche und unternehmerische Anpassungsfortschritte in Ostdeutschland", Deutsches Institut für Wirtschaftsforschung, in DIW-Wochenbericht (several issues).