Conflicting views in run-up to metalworking bargaining round

In December 2001, Germany's IG Metall metalworkers' trade union called for pay increases of between 5% and 7% in the 2002 collective bargaining round, to be used for increases in basic pay and the upgrading of certain groups of employees. The Gesamtmetall employers' association sharply rejected the unions' claims and issued its own demands, which include long-term pay agreements and the introduction of a new profit-sharing system.

On 10 December 2001, the executive board of the IG Metall metalworkers' trade union decided its basic orientations for the 2002 collective bargaining round for the 3.6 million employees in the German metalworking industry. A new pay agreement should run from 1 March 2002 and would normally have a duration of 12 months. The IG Metall board recommended to its regional collective bargaining committees that they make claims for pay increases of between 5% and 7%, which should be used for

  • significant increases in wages and salaries; and
  • a reform of existing pay framework agreements (Entgeltrahmentarifverträge). IG Metall is seeking a modernisation of the grading system including, in particular, the abolition of the traditional distinction between blue- and white-collar workers.

The IG Metall board made its broad recommendations after wide-ranging discussions within the union at local and regional level. The pay claims proposed by various parties within IG Metall varied between 4%-5% at the lower end of the scale and over 10% at the upper end. After another round of discussions within the union's regional collective bargaining committees, the IG Metall board was due to decide its final detailed pay claims on 28 January 2002.

IG Metall justifies pay claim

In a press statement, the president of IG Metall, Klaus Zwickel, explained the union's pay recommendation, referring to the three components which traditionally shape the union's pay claims:

  1. the expected inflation rate, which IG Metall estimates to be up to 2%;
  2. the expected growth of national productivity, which IG Metall estimates to be up to 2%; and
  3. a 'redistribution component ' (Umverteilungskomponente) which aims to achieve a fairer distribution between labour income and capital income.

In IG Metall's estimation, there is a 'cost-neutral margin of distribution' (kostenneutraler Verteilungsspielraum - ie inflation plus productivity growth) of up to 4%, with increases demanded above this level seen as constituting the redistribution component. Mr Zwickel justified the latter by referring to a high 'backlog of demand' arising from the very moderate pay increases agreed in previous bargaining rounds. The last metalworking pay agreement was concluded in March 2000 and provided for a 3% pay increase in 2000 and a 2.1% pay increase in 2001, which were both clearly below the 'cost-neutral margin of distribution' (DE0004255F).

IG Metall claims that there has been a general disproportion between the development of wages and of profits in metalworking. According to figures provided by the union's economic department, net profits in the metalworking sector increased from DEM 1.1 billion in 1993 (the last year of recession) to DEM 55.1 billion in 2000. Real net wages in metalworking increased by only 4.7% over the same period, leading to a sharp reduction in real unit labor costs. At the same time, employment in metalworking fell from 5,048,000 employees in 1991 to 3,473,000 in 1997 and since then has recorded only a very moderate increase to 3,512,000 in 2000.

For IG Metall, these figures prove that wage restraint has not led to more employment. Furthermore, claims the union, the recent economic downturn has highlighted the problems of an excessive orientation towards exports in German manufacturing, and indicated a significant lack of domestic demand. Therefore, IG Metall sees its new pay claims as a contribution to strengthening employees' purchasing power, as well as to redistributing wealth more fairly.

In addition to general pay increases, IG Metall further demands a reform of the current pay framework agreements, in order to define new job descriptions and pay grades which correspond better with modern reality at work. The union seeks, in particular, the abolition of separate agreements for blue- and white-collar workers and of the current pay discrimination between the two groups of employees. Currently, a white-collar worker earns on average between DEM 300 and DEM 700 per month more than a blue-collar worker, even if the latter has similar qualifications and does a similar job.

The metalworking social partners have already been negotiating on the introduction of new pay framework agreements for many years, and IG Metall now demands concrete results in the forthcoming bargaining round. For the union, the introduction of new grading systems will necessarily be accompanied by the upgrading of certain groups of employees, thus leading to increased labour costs for employers. IG Metall sees these additional costs as a part of its overall pay claim.

Gesamtmetall's response

After IG Metall announced its pay claims, the employers' association for the metalworking and electrical industry, Gesamtmetall, immediately rejected the demands as 'totally ignoring economic reality'. In a comment, the president of Gesamtmetall, Martin Kannegiesser, stated that since spring 2001 metalworking companies in Germany have been facing a significant economic downturn. According to Mr. Kannegiesser, in October 2001 orders in metalworking were 8.5% below the level of the previous year, while production was down by 3%. A 5%-7% pay increase, as demanded by IG Metall, would aggravate the economic situation and might threaten many jobs in metalworking. Instead, employers called for a continuation of the approach taken by the previous metalworking bargaining round, whose moderate pay increases – in the view of Gesamtmetall – have contributed to the creation of more than 100,000 new jobs.

Against the background of the current uncertain economic developments, metalworking employers do not want to discuss concrete figures for pay increase before the beginning of formal negotiations in February or March 2002. Regarding the issue of the reform of pay framework agreements, Gesamtmetall agrees in principle on the need for modernisation. However, the employers' association emphasises that this project has to be 'cost-neutral' and that it might be difficult to include it in a normal pay bargaining round.

Gesamtmetall announced its own demands for the 2002 bargaining round, which include:

  1. a new pay agreement with a duration of two years;
  2. a general commitment that pay increases should be in line with increases in national productivity;
  3. the introduction of a mechanism to check the economic assumptions underlying a pay agreement after a certain period of time, in order to have the possibility of changing the original agreement in line with the real economic developments; and
  4. the introduction of a profit-sharing system, whereby parts of the collectively agreed pay increase should depend on the performance of the individual company.

According to Gesamtmetall, a two-year pay agreement would give companies more certainty in their economic planning. However, IG Metall has already announced that it will not accept such a long duration for the pay agreement, given what it sees as a bad experience with the previous two-year pay agreement - the pay increase in particular in the second year was below inflation and thereby led to a decrease in real wages. The union also rejected the employers' idea of including a 'revision clause' in a two-year agreement, which might adjust the agreed pay increase in the light of actual economic developments.

The most contentious issue in the debate between IG Metall and the employers relates to the concrete economic criteria which should be used for determining pay increases. According to Gesamtmetall, the growth in national productivity should be seen as the maximum level for pay increases, since higher increases would automatically lead to a deterioration in competitiveness and job losses. The employers' association refers to the January 2000 joint statement of the national tripartite Alliance for Jobs, which recommended a 'longer-term and employment-oriented collective bargaining policy', whereby the 'available distributive margin should be based on productivity growth and should be primarily used for job-creating agreements' (DE0001232F).

This statement has always been widely regarded as an insubstantial compromise, since most unions interpret it as defining not a nominal but a real distributive margin, including at least compensation for inflation. In the run-up to the 2002 bargaining round, the employers' associations have called for another round of top-level talks within the Alliance for Jobs in order to confirm the previous statement on collective bargaining policy. The unions, however, sharply rejected any further talks about collective bargaining policy within the Alliance for Jobs. For example, the vice-president of IG Metall, Jürgen Peters, said that the unions need no 'alliance for wage restraint'.

The introduction of a new two-tier pay system, whereby one part of the pay increase should be determined at sectoral level while another part should be determined at company level, depending on the company's performance, will be a core demand of the employers in the 2002 bargaining round (DE0112207F). On the trade union side, however, there are rather differing views on this issue. While some voices within the unions see the introduction of new profit-sharing systems as a positive opportunity to increase employees' participation in economic wealth, others see it as a threat to the traditional goal of a solidaristic pay policy, since it would favour only some employees and lead to a greater polarisation of income. Within IG Metall, most regional collective bargaining committees have so far taken a rather sceptical view on the introduction of new profit-sharing systems, and have clearly rejected dealing with the issue in the forthcoming bargaining round.

Commentary

IG Metall's pay claims for the 2002 bargaining round mainly reflect two related facts: First, the policy of pay restraint, which dominated not the 2000 bargaining round but also most of the bargaining rounds in the 1990s, has not led to the promised promotion of economic growth and creation of employment. On the contrary, Germany's economic growth and employment performance has been one of the worst in Europe, while at the same time pay developments have been among the most restrained. The very moderate pay increases in Germany have led to a significant redistribution from labour income to capital income.

Second, against this background there are very pronounced expectations among IG Metall members of a more 'offensive' pay policy and a return to greater wealth redistribution. The IG Metall president, Klaus Zwickel, has already warned about an 'explosive atmosphere' among his members, which could easily lead to strikes and industrial action. The union's leadership seems to be under significant pressure to prove to its members that it can achieve 'good results'. Doing so might be an important precondition for stemming further decline in the union's membership.

For further background and updated information on the 2002 collective bargaining round in metalworking, see also the special web pages provided by IG Metall and Gesamtmetall. (Thorsten Schulten, Institute for Economic and Social Research, WSI)

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