Employers in Germany use fixed-term contracts to test the skills of new employees when taking on short-term third-party projects, or to replace absent staff. Unions claim that such contracts lead to job insecurity. However, new data show a considerable rise in the number of employees receiving an open-ended contract after being in fixed-term employment, particularly in the banking and financial sector, in the motor industry and in the transportation and storage sector.
Background
The ‘Work: safe and fair’ (in German) campaign is run by IG Metall, the dominant metalworkers’ union in Germany and a major trend-setter in national bargaining that represents both blue and white-collar workers, largely in the automotive industry. As part of its campaign, the union commissioned a survey of 514,134 employees in over 8,400 establishments between February and April 2013.
An overwhelming majority of participants (88%) said that an open-ended contract was a ‘very important’ part of job security and fair working conditions, the union revealed in a press statement (in German).
Precarious or atypical work is often pinpointed by the increased use of fixed-term contracts combined with other indicators, such as low wages, the number of ‘mini-jobs’ (characterised by a maximum monthly income of €450) or temporary or part-time work.
Social partners’ views on the nature and extent of precarious work, however, differ greatly.
The Confederation of German Trade Unions (DGB) is opposed to all forms of precarious work and DGB President Michael Sommer, in a press statement in May 2013 (in German), demanded a change in labour market policy to limit it.
The German Confederation of Employers’ Associations (BDA) has called for unbiased consideration of the effects of flexible employment measures in its report, The reality of the German labour market (in German, 1.1 MB PDF), and advocates even greater flexibility in the labour market.
In June 2013, the Institute for Employment Research (IAB) released its analysis of data drawn from an annual survey of 16,000 establishments entitled ‘Temporary employment - Current numbers from the IAB Establishment Panel 2012 (in German, 1.9 MB PDF)’. The report tracks the extent and development of fixed-term employment in Germany since 2009, when the global financial crisis began to have an impact on the country’s economy.
Precarious work or stepping stone?
Employers use fixed-term contracts to test the skills of new employees when taking on short-term third-party projects or when permanent employees take extended periods of leave. Given the high level of employment protection in Germany, such contracts also lower the barriers to hiring new employees, especially in times of economic uncertainty.
IAB data indicate that even during the recent economic crisis, a rising proportion of fixed-term contracts were converted into permanent ones between 2009 and 2012, rising from 30% of all fixed-term contracts in 2009 to 39% in 2012. In both years, 33% of the labour force remained in fixed-term employment, with their contracts being renewed or extended. However, there are differences between sectors that greatly affect employees’ views of permanent employment.
Fixed-term to permanent employment by sector
As the table shows, varying proportions of fixed-term contracts are exchanged for permanent contracts in different sectors.
Fixed-term employment in selected industries
| | New placements with fixed-term contracts (% of all new placements in the first half of 2012) | Fixed-term contracts converted into permanent contracts in the first half of 2012 |
| Construction | 20 | 44 |
| Banking and insurance | 23 | 61 |
| Information and communication | 23 | 41 |
| Wholesale, retail and repair of motor vehicles | 36 | 59 |
| Transport and storage | 36 | 47 |
| Retail | 41 | 41 |
| Other services | 42 | 33 |
| Mining, energy, water and waste management | 43 | 47 |
| Economic, scientific and freelance services | 43 | 35 |
| Hotels and restaurants | 46 | 46 |
| Healthcare and social services | 54 | 47 |
| Food industry | 57 | 39 |
| Capital goods | 57 | 59 |
| Agriculture and forestry | 58 | 19 |
| Public administration | 60 | 28 |
| Non-profit organisations | 68 | 24 |
| Education | 76 | 18 |
Note: The IAB Establishment Panel only records recruitment of formerly fixed-term employees on a permanent basis within the same establishment (excluding apprentices). Source: IAB, 2013.
Conclusions
As the IAB notes, there is a negative correlation between a high proportion of fixed-term employment in a given sector and the likelihood of such contracts being continued on an open-ended basis. This is particularly true of those sectors financed primarily by public spending such as education, non-profit organisations and public administration. On the other hand, sectors such as banking and insurance, and wholesale, retail and repair of motor vehicles used fewer fixed-term employment contracts when recruiting new staff during the first half of 2012, and higher proportions of fixed-term contracts in these sectors were converted into open-ended ones.
The research shows that being employed on a fixed-term contract can offer good opportunities for job security, offering a stepping stone into permanent employment in private industry and its related sectors.
Sandra Vogel, Cologne Institute for Economic Research (IW Köln)