Trade unions call for a U-turn in pay policy in 1999

Schulten, Thorsten

Overview

Article

Trade unions call for a U-turn in pay policy in 1999

Published: 27 October 1998

Thorsten Schulten

Collective bargaining

Pay and income

Working conditions

Industrial relations

In October 1998, several trade unions called for a major U-turn in pay policy in the forthcoming 1999 bargaining round. After a long period of rather moderate wage increases, many unions are now coming forward with demands for a significant increase in real wages. In particular, the metalworkers' union, IG Metall, which traditionally acts as a "wage leader" in German collective bargaining, has called for a 6.5% wage increase in 1999.

In October 1998, several German trade unions called for a U-turn in pay policy in the forthcoming 1999 bargaining round. After several years of moderate wage increases, the unions are demanding an "end of modesty" to strengthen employees' purchasing power and thereby overcome the weakness of internal demand which is seen as a major cause of high unemployment in Germany. In contrast, employers' associations are asking the unions to continue with pay moderation, arguing that any growth in labour costs would have negative effects on the labour market.

In October 1998, several trade unions called for a major U-turn in pay policy in the forthcoming 1999 bargaining round. After a long period of rather moderate wage increases, many unions are now coming forward with demands for a significant increase in real wages. In particular, the metalworkers' union, IG Metall, which traditionally acts as a "wage leader" in German collective bargaining, has called for a 6.5% wage increase in 1999.

According to the unions, there is a strong need for higher wages for at least two reasons. Firstly, the unions argue that during the past few years the moderate wage policy has not had positive effects on the labour market: on the contrary, low wage increases have decreased employees' purchasing power and, therefore, weakened internal private demand on Germany's markets, which is seen as a major cause of the country's persistent mass unemployment. Secondly, the unions seek more "fairness in distribution" (Verteilungsgerechtigkeit) between wage earners and profit income, as recent years have created a growing gap between relatively low wage increases on the one hand and relatively high growth in profits on the other hand.

Wage developments in the 1990s

In practically every year during the 1990s, Germany saw wage increases which were below the so-called "cost-neutral margin of distribution" (kostenneutraler Verteilungsspielraum) - which is the increase in inflation plus the increase in productivity. According to a recent calculation by the Institute for Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI), between 1991 and 1998 wages and salaries grew nearly 8 percentage points slower than the sum of productivity and price increases (see table 1). Over this period, while payments per employee increased by about 31.4%, the "margin of distribution" grew about 39.2%. In the view of the WSI, this moderate wage development had, however, almost no positive effects on the labour market, as the overall volume of work decreased from 50.4 billion working hours in 1991 to 46.2 billion working hours in 1998.

**Table 1. Development of productivity, prices and employee income 1991-8 (1991=100)**
Year	Productivity	Prices	Productivity prices	Gross income per employee
1991-8	19.3	19.9	39.2	31.4
1991	100	100	100	100
1992	104.1	105.1	109.2	110.5
1993	104.7	109.8	114.5	115.3
1994	108.3	112.8	121.1	119.4
1995	110.0	114.8	124.8	124.1
1996	112.9	116.6	129.5	127.2
1997	117.0	118.7	135.7	129.5
1998*	119.3	119.9	139.2	131.4

* Estimated.

Source: WSI collective agreement archive 1998

Agreed wage increases for 1998

Taking into account the development in wages and employment over the 1990s, there has been growing criticism of the wage moderation policy among German trade unions in recent years. Autumn 1997, for example, saw a sharp controversy on pay policy, after the president of IG Metall, Klaus Zwickel, called for a so-called "end of modesty" (Ende der Bescheidenheit) in wage developments (DE9711236F).

Nevertheless, the agreed wage increases in the 1998 collective bargaining round indicate that Germany is still following the path of moderate wage policy. Most collective agreements for 1998 provided for wage increases between 1.5% and 2.5% (see table 2). Therefore, almost all the agreements did not exhaust the margin of distribution, which will be approximately 4.5% in 1998 (1.5% inflation plus 3% productivity).

**Table 2. Selected collective agreements for 1998**
Date of agreement	Sectors (region)	Wage increase	Term
5 December 1996	Metalworking	2.5%	From 1 April 1998 for nine months
9 January 1997	Wood processing (Westphalia)	1.7%	From 1 April 1998 for 12 months
17 January 1997	Textiles and clothing (west Germany)	2.1%	From 1 July 1998 for 10/11 months
28 May 1997	Banking (west Germany) (DE9706219N)	2.0%	From 1 December 1997 for 13 months
24 June 1997	Volkswagen AG (DE9707221F)	2.5%	From 1 August 1998 for 12 months
1 July 1997	Insurance (west Germany)	2.0%	From 1 December 1997 for 13 months
21 October 1997	Steel industry (west Germany) (DE9710234N)	2.6%	From 1 March 1998 for 12 months
8 January 1998	Steel industry (east Germany) (DE9801243F)	2.5%	From 1 January 1998 for 13 months
27 March 1998	Public services (DE9804258F)	1.5%	From 1 January 1998 for 12 months
16 April 1998	Construction (west Germany) (DE9804162N)	1.5%	From 1 April 1998 for 12 months
5 May 1998	Wholesale trade (Bavaria)	2.5%	From 1 May 1998 for 11 months
9 May 1998	Chemical industry (west Germany) (DE9805265N)	2.1%*	From 1 March 1998 for 14 months
13 May 1998	Printing	2.0%	From 1 April 1998 for 12 months
17 May 1998	Deutsche Bahn AG (Railway services)	1.5%	From 1 June 1998 for 11 months
20 May 1998	Construction (east Germany)	1.5%	From 1 October 1998 for six months
10 June 1998	Rubber industry (west Germany)	2.0%	From 1 July 1998 for 12 months
10 June 1998	Rubber industry (east Germany)	3.0%	From 1 November 1998 for 14 months
22 June 1998	Retail trade (Bavaria)	2.1%-2.5%	From 1 July 1998 for 10 months

* Plus a flat-rate payment of 1.1% of annual income.

Source: WSI collective agreement archive 1998.

Wage policy for the 1999 metalworking bargaining round

The position of IG Metall

On 13 October 1998, the executive board of IG Metall adopted a recommendation that their regional collective bargaining commissions demand a 6.5% wage increase in the forthcoming 1999 bargaining round. Traditionally, IG Metall wage demands are based on three components: the rise in inflation; average national productivity growth; and the so-called "redistribution component" (Umverteilungskomponente), which is seen as an instrument to create a fairer income distribution. In 1999, IG Metall expects a prices increase of 1.5% and growth in national productivity of 2.5%, which together create a "cost-neutral" distribution margin of 4%. Adding a further 2.5% for redistribution leads to an overall demand for a 6.5% wage increase. According to the union's economic experts, metalworking employers are able to pay the demanded wage increases without losses in competitiveness, because the expected growth rate of productivity for the sector will be around 5.5%.

IG Metall has explained the use of the "redistribution component" by referring to what it sees as the "unfair distribution" of income in recent years. According to an analysis by the IG Metall economic department, net profits in German metalworking expanded from DEM 1 billion in 1993 (a recession year) to DEM 34 billion in 1997. Following high productivity growth and moderate wage increases, unit labour costs (Lohnstückkosten) were reduced by about 18% over the same period. Finally, between 1993 and 1997 the number of employees in German metalworking declined from 4 million to 3.4 million. For IG Metall's president, Klaus Zwickel, this figure proves that the unions' moderate wage policy has not led to new jobs but only created mushrooming profits.

Against this background, the 6.5% wage demand for the forthcoming bargaining round is also an expression of a degree of compromise in IG Metall's internal discussions, because significant sections of the union's membership had called for even higher wage increases of up to 10%.

The position of Gesamtmetall

In a first reaction, the metalworking employers' association, Gesamtmetall, has rejected the union's demand as "unrealistic," considering the economic performance of German metalworking. Instead, the employers call for a continuation of the moderate wage policy, which they believe has just shown its first positive effects on the labour market. According to the president of Gesamtmetall, Werner Stumpfe, since January 1998 the metalworking industry has created about 60,000 new jobs and thereby made an important contribution to strengthening private internal demand.

For the employers, the 1999 collective bargaining round should fulfil two important tasks: the safeguarding and creation of jobs; and the improvement of employee income. In August 1998, Mr. Stumpfe announced a 4% productivity increase, stating that this should not be used entirely for wage increases, but also partly for employment-creating measures.

In addition, Gesamtmetall has demanded a more differentiated wage policy which could better take into consideration the different economic performances of companies within the industry. The metalworking employers propose concluding a general wage increase for all companies and, on top of that, adding a profit-related lump-sum payment at company level.

Wage policy debated for the 1999 bargaining round

IG Metall's demand for an "end of modesty" in wage policy has led to fierce controversy both within the trade unions and among the broader public. Many unions have supported the call for a major U-turn in wage policy. For example, the Trading, Banking and Insurance Union (Gewerkschaft Handel Banken und Versicherungen, HBV) and the German White-Collar Workers' Union (Deutsche Angestellten-Gewerkschaft, DAG) have demanded significant participation for employees in the economy's increased profits and have come forward with wage demands of 6.0%-6.5% for the banking sector. Support for a more offensive wages policy has also come from the Media Union (IG Medien), whose president, Detlef Hensche, has declared that the moderate wage policy of the past was a "defeat for the unions in collective bargaining," which must now be redressed. In contrast, the president of the Mining, Chemicals and Energy Union (IG Bergbau, Chemie, Energy, IG BCE), Hubertus Schmoldt, criticised the "end of modesty" slogan and stated that his union would continue with a "responsible wage policy", walking a tightrope between higher wages and securing employment.

Employers' associations emphasised in unison the need for a continuation of moderate wage policy. The president of the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), Dieter Hundt, declared that an expansive wage policy would definitively lead to more unemployment. The employers' position has been supported by the "autumn economic expertise" (Herbstgutachten) drawn up by six prominent German economic research institutes, which advises the collective bargaining parties to maintain moderate wage policies for an extended period. By contrast, the German Institute for Economics (Deutsches Institut für Wirtschaftsforschung, DIW) - one of the institutes which produces the "expertise" - published a "minority statement" in which it gave support to the unions' viewpoint and demanded a return to more productivity-oriented wage increases.

Commentary

Since the general elections in September 1998 created the preconditions for a significant change in German politics with the election of a Social Democrat-led government, it is not a surprise that most trade unions now also wish to see a U-turn in pay policy. After a long period of moderate wage policy with a significant redistribution from employee income to profit income, there is a strong demand for higher wages among union members, in particular as the previous "wage restraint" did not result in an appreciable reduction of existing mass unemployment.

Whether there will be a real U-turn in pay policy in 1999 will very much depend on the bargaining results in metalworking. The metalworking industry is not only the first sector to start bargaining in the forthcoming bargaining round, but also traditionally acts as a "wage leader" in Germany. Finally, as 1999's collective bargaining will also be the first bargaining round under the conditions of EU Economic and Monetary Union, the further development of German pay policy will have a major influence on collective bargaining in many other European countries. (Thorsten Schulten, Institute for Economic and Social Research (WSI))

Eurofound recommends citing this publication in the following way.

Eurofound (1998), Trade unions call for a U-turn in pay policy in 1999, article.