Tripartite agreement on Employment Alliance for eastern Germany

On 22 May 1997, the Federal Government, trade and employers' associations, and trade unions agreed on an "Employment Alliance" entitled the Joint initiative for more jobs in eastern Germany. Here, we outline the contents of the programme and the reactions of the social partners.

A year after the collapse of the tripartite "corporatist" attempt to revitalise the entire German economy (DE9702202F), government, business and trade unions have succeeded in forging an alliance to boost economic growth, productivity and employment in eastern Germany.

The economic and industrial relations background

The announcement of the Joint initiative for more jobs in eastern Germany (Gemeinsame Initiative für mehr Arbeitsplätze in Ostdeutschland) comes amid faltering growth and a continuing lag in productivity in the eastern German states. According to the German Institute of Economic Research (DIW), growth in the region is expected to be around 1% in 1997, well below the 4%-5% needed if eastern Germany is to catch up with the west. Unemployment stood at 17.2% in May 1997, 7.6 percentage points higher than the rate in the west. In the east, the majority of employers are not members of the traditional employers' associations and have wage deals set at enterprise or plant level. Even when organised in an employers' association, a considerable number of companies provide terms and conditions of employment below those fixed in collective contracts, often with the tacit permission of the local unions and works councils. In eastern Germany, the collective bargaining system resembles more a "patchwork rug" than the still relatively centralised and effective industry-level collective bargaining system in the west.

The Employment Alliance

On 22 May 1997, a new Employment Alliance for eastern Germany was concluded between the German Federal Government, the German Trade Union Federation (DGB), the German Salaried Employees' Union (DAG), the Confederation of German Employers' Associations (BDA), the Confederation of German Industries (BDI), the German Association of Chambers of Commerce (DIHT), the Central Association of German Crafts (ZDH) and the Associations of the Credit Institutions (Kreditgewerbe). Its primary objectives are to: speed up the transformation process of the eastern German economy; boost growth; reduce unit labour costs; stabilise employment in 1997 at the level of 1996; and create 100,000 new jobs in each of the following years.

Among other measures to be executed by the state and the private sector - such as continuing Federal subsidies until 2004 and an increase in investment and purchase by western companies - the "Joint initiative" provides a number of guidelines on industrial relations in eastern Germany. In order to preserve and create job, the signatories agreed the following.

  • Collective bargaining policy, especially wage bargaining, must pay due regard to employment, and to the particular economic and commercial circumstances of the individual firm. This will be achieved by the reform of the existing industry-level collective bargaining system. Furthermore, the bargaining partners will search jointly for solutions to close the unit labour cost gap between eastern and western Germany.
  • In collective bargaining, the bargaining partners will provide for special regulations regarding small and medium-sized enterprises, employment pacts, the taking-on of vocational trainees, the creation of part-time jobs, and long-term policies such as profit-sharing plans in order to stabilise labour costs.
  • The social partners will increasingly make use of more flexible working time arrangements, such as working time accounts. In addition, they will support the integration of long-term unemployed people and of new and re-entrants into the labour market, through special regulations.
  • The bargaining partners will establish practicable and effective "hardship clauses" in cases where the employer faces genuine difficulty in meeting the terms and conditions of the current collective agreements. These hardship clauses (DE9703205F) shall ensure binding decisions within a maximum of two weeks.
  • The development of new training occupations and the modernisation of existing ones will allow for more scope for individual firms and more flexibility regarding the contents of training occupations (DE9704107F). In order to increase the supply of apprenticeships, the social partners will review collective agreements to detect impediments to training. They will also review the costs of vocational training. Furthermore, the bargaining partners will discuss the establishment of a new theme for collective bargaining, regarding cost reductions for private enterprises, public utilities and governments which increase their number of vocational trainees.

The signatories will review the implementation of the programme every six months. When presenting the programme in Berlin, Chancellor Helmut Kohl and Dieter Schulte, chair of the DGB, acknowledged that a chance existed that some elements of the programme could be carried westwards, and that the Employment Alliance could be the first step towards developing a similar agreement for the whole of Germany. This points at the possibility of eastern Germany leading the way to reform at national level. The programme was welcomed by all signatories and the minister-presidents of the eastern German states.

Reactions of the social partners and the trade union row

Hans-Peter Stihl, president of the DIHT, Dieter Hundt, president of the BDA employers' association, and Ludolf-Georg von Wartenberg, executive director at the BDI trade association, all consider the annual creation of 100,000 jobs to be realistic.

Dieter Schulte, chair of the DGB, regards the agreement neither as a means to achieve a wage freeze for eastern Germany nor as a device for undermining employees' rights. He considers it as an attempt through collective self-regulation to avoid the legal imposition of "opening clauses", allowing matters normally dealt with in sectoral collective agreements to be agreed at company level.

However, in the days following the presentation of the Employment Alliance, the member unions of the DGB entered into a disagreement over its contents and its implications. The jobs pact was welcomed and supported by the chemicals employees' union, IG Chemie, the food industry employees' union, Gewerkschaft Nahrungsmittel-Genuß-Gaststätten (NGG) and the textile industry employees' union, Gewerkschaft Textil-Bekleidung (GTB). However, the Employment Alliance was strongly opposed by the media industry employees' union, IG Medien, the trade, banking and insurance employees' union, Gewerkschaft Handel, Banken und Versicherungen (HBV), and the wood and plastics processing employees' union, Gewerkschaft Holz und Kunststoff (GHK). The HBV, GHK and IG Medien criticised Dieter Schulte for not having consulted them during the preparation of the agreement. All three unions deny being bound by the pact and refer to the fact that the DGB neither conducts collective bargaining nor has any competence to influence its members' bargaining policies at branch level. According to Margret Mönig-Raane of the HBV, the pact signals that the trade unions had not reacted adequately to the jobs crisis in eastern Germany. Furthermore, it would significantly weaken the future bargaining power of the unions. According to Detlef Hensche of IG Medien, the reduction of industry-level agreements to framework agreements will inevitably lead to the erosion of industry-level bargaining. The public sector employees' union, ÖTV, did not openly criticise the pact, but does not see any need to reform its own practices. The reaction of the powerful metalworkers' union, IG Metall, was ambiguous: while its leaders, Klaus Zwickel and Walter Riester, as well as some major company works councils, supported Dieter Schulte and the DGB, Jürgen Peters, head of IG Metall in Lower-Saxony, reported outrage at works council level, and heavily criticised the proposals for decentralisation and increased flexibility of collective bargaining as giving way to employers' attempts to "blackmail" works councils.


The pressures of ever-tougher international competition and the aftermath of unification impose heavy strains on Germany's industrial relations system. Many officials of the social partners and the political parties long to (re)turn to the apparent security of tripartite "corporatist "decision-making. But, as the failures of concerted action in the 1970s and the Employment Alliance in 1996 prove, attention paid to national-level corporatist deals in Germany often turns out to be a waste of effort.

True, there are interesting points in the new agreement proving the commitment by the employers' associations and trade unions to making the system of industry-wide collective pay agreements more flexible. However, if one looks at the current state of the fragmented eastern German collective bargaining system, this commitment resembles more an ex-post legitimisation of the reality created by individual employers, local unions and works councils. So the agreement makes only little difference to what is already happening at factory level.

True, corporatist decisions may under certain circumstances be effective and then, depending on their impact, even be applauded. In this case, the recognition by government, employers' associations and trade unions that the imposition of the west German model on eastern Germany and the bargaining policy errors in the east - eg the economically unjustified equalisation of wages between east and west - have contributed to the economic crisis in eastern Germany, certainly has to be applauded. However, the prompt and controversial reactions of the DGB member unions reveal how difficult it will be to make the corporatist deal binding and stick. The same holds true for the employers' side. There is an inherent danger in corporatist agreements: they place too much weight on what employers say, collectively, and too little on what is in their interest, individually.

True, everyone wishes and hopes for the creation of new jobs in eastern Germany. However, the jobs target of 100,000 may raise great expectations for positive employment effects that might be disappointed. The Halle-based Institute for Economic Research (IWH) estimates that 200,000 new jobs will have to be created in 1998 in order to achieve a positive employment effect of 100,000.

Already, two weeks after the sound of the fanfares that announced the Employment Alliance for eastern Germany died away, the public discussion of the pact has nearly ceased. Let us wait for the first implementation review in October. In the meantime, the redesigning of the German model will go on, with or without the assistance of the corporatist actors ... (Stefan Zagelmeyer, IW)

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