New restructuring plans highlight problems of railway reform

In a letter sent to employees in mid-January 2000, the chair of the board of Deutsche Bahn (DB) AG announced his plans for restructuring the German national railway company. Under the proposals, DB Reise & Touristik and DB Regio, the subsidiaries responsible for regional and long-distance passenger transport respectively, would be merged in order to establish a single subsidiary for passenger transport, which could improve cooperation between different lines. At the same time, the company is to be made ready for stock-market flotation in 2004, with priority given to the reduction of personnel costs. The GdED railworkers' trade union fears that this could lead to a loss of 70,000 jobs and that the range of public rail services will be reduced dramatically.

The German federal railways have been undergoing a lengthy process of privatisation. In 1993 the federal parliament (Bundestag) passed a law concerning the reorganisation of the railway sector. This law regulates, among other matters, the status of the former career public servants (Beamte) employed by the railways, and staff representation matters. The competence for regional transport and for non-state owned railways was handed over to the individual federal states (Länder), which receive subsidies for this purpose from the federal government. The general law on railways regulates the conditions for competition. Altogether 136 federal laws had to be amended as a result of these changes.

On 1 January 1994, the "first step" of the railways reform began with the foundation of the joint-stock corporation Deutsche Bahn (DB) AG. It is important to note that this has not constituted a "real" privatisation, because DB AG's shares have so far remained 100% federally owned. On 1 September 1999, in the "second step" of the reform, this joint-stock company was subdivided into five separate companies, responsible for: long-distance passenger transport (DB Reise & Touristik); short-distance passenger transport (DB Regio); railway stations (DB Station & Service); goods traffic (DB Cargo); and the railway system and tracks (DB Netz). In 1998, DB AG's annual turnover stood at DEM 30 billion. In 2004 the company will be floated on the stock market, and it aims to be free of financial support from the federal government after this date.

New organisations have entered the goods transport and regional passenger transport markets, thereby intensifying competition. A distinction is still made between state-owned railways and non-state owned railways. The former are exclusively or predominantly owned by the federal state, like DB AG and its subsidiary companies. The latter are not state-owned, or only partly so - depending on their particular concession, they operate as a part of either public or private transport (eg for docks or factories). For passengers it is not always obvious if DB AG or non-state owned railways are responsible for certain railway networks, because the fares are adjusted to DB AG levels. New entrants criticise DB AG and its subsidiary company DB Netz, which owns the tracks, for distorting competition. Up until now, DB companies have profited from the pricing system, because they have to pay lower leasing fees for using the tracks than their rivals. In fact they have a monopoly on tracks, which has led several states to claim that tracks should become federal property again, or should at least be controlled by a supervisory board, like the Regulatory Authority for Telecommunications and Post. Besides, they fear that DB AG will neglect tracks in unprofitable areas if policy is oriented towards the stock market. This hints at a main hindrance to the economic success of German railways, the fact that the federal government is saddling the railway companies with the costs for the total maintenance of the railway system. This leads to prices for local lines which are much higher than in many other European countries.

Effects on employment structures

With the restructuring of the federal railways, the number of workers has fallen drastically - as table 1 indicates. It should be borne in mind that the very high number of workers in 1994 was partly a result of the union of the federal railway with the Reichsbahn, the railway of the former German Democratic Republic (GDR). Though trade unions were able to maintain their interests in terms of participation within the whole restructuring process, they were not able to maintain the old level of employment. The restructuring has also brought about a change from "industrial" jobs towards more service-oriented jobs.

Table 1. Development of employment at DB AG, 1994-8
Year Employees Career public servants Trainees Total
1994 223,024 108,077 21,282 352,383
1995 212,031 100,548 18,973 331,552
1996 199,736 89,032 17,473 306,241
1997 189,104 79,169 17,049 285,322
1998 181,460 71,008 16,275 268,743

Source: Deutsche Bahn AG

A main problem in the reorganisation and integration of the federal railways into DB AG has been the transition of former career public servants into new working arrangements. As table 1 indicates, the railways now employ "ordinary" employees as well as career public servants with a special status. Since 1 January 1994, the railway company has been subjected to the Works Constitution Act (Betriebsverfassungsgesetz). The institutionalised representation of workers' interests is divided between staff council s and works council s. While the former protect the interests of career public servants concerning their status (such as pay, pensions or disciplinary proceedings), the latter are important for all questions concerning the workplace, working time and work organisation. The interlocutor for the staff councils is the federal railways authority (Bundeseisenbahnvermögen), which is represented by the federal minister for traffic and transportation, and the interlocutor for works councils is DB AG.

With the conclusion of a framework agreement on employment conditions, the existing differences between career public servants and other employees concerning dismissals and other important regulations have been eliminated. At the same time, the status of career public servants has been maintained and specific regulations on issues like employment protection, pay and pensions have been implemented.

Collective bargaining

In March 1999, DB AG and the trade unions - the rail workers' union affiliated to the DGB confederation (Gewerkschaft der Eisenbahner Deutschlands, GdED), the engine drivers' union (Gewerkschaft Deutscher Lokführer, GDL) and the union representing railway career public servants (Gewerkschaft deutscher Bundesbahnbeamter und -anwärter, GDBA) - negotiated a combined general agreement on pay grades which regulates the basic provisions for employees who have to move from the federal railways to one of the DB subsidiary companies (DE9905110N). The general agreement prevents the danger of benefits being lost when changing employer from one company to another and maintains the protection against dismissals resulting from length of service in the company. Extra sick pay, probationary employment and long-service bonuses are also covered in the agreement.

There are thus now a number of agreements covering different aspects of the conditions of employment for workers at DB AG and its subsidiary companies, as table 2 shows.

Table 2. Agreements at DB
Agreement Level Issues covered
General agreement All employees of DB AG (including subsidiaries); some regional operating companies. Regulation of termination of contract, holiday regulations (bonus, leave), retirement pension provisions, company housing, occupational welfare.
Wage agreement All employees of DB AG (including subsidiaries). Pay (regular payments, pay for trainees, arrangements for older workers, sick pay).
Company agreement All employees of DB AG who have to change jobs within the company. Additional payments and/or reduction of daily working time if the travelling distance to the new job is longer than before, additional payments if the new job requires change of residence, paid training and qualification, compensation for job loss.
Agreement for the DB Arbeit service centre Employees of the DB Labour service centre. Working time, holiday leave, sick leave, pay, placements, co-determination rights of works councils.
Company agreement for organising structural change Employees of DB AG. Participation of the works council in company targets.
Company agreement for an internal labour market All employees of DB AG. Promotion of employees who have lost their current job within DB AG, "socially acceptable" adaptation.

Source: EIRO.

The duration of the general agreement and the wage agreement is from 1 June 1999 to at least 31 December 2000; the group agreement, the agreement for the DB Arbeit (see below) service centre, and the group agreement for an internal labour market are valid from 1 June 1999 to 31 December 2002.

Under the terms of the wage agreement, the median monthly gross income in DB AG in 1999 was about DEM 3,057 in western Germany and DEM 2,660 in eastern Germany (equivalent to 87% of the western rate). Additional payments are made for shiftworking, additional work, weekend work and training. There is an annual bonus of one month's pay and annual holiday pay of DEM 800. The collectively agreed working time is 38 hours per week. The collective agreement regulates working time by setting an annual working time figure, thus making it easier to adapt staffing levels to economic demands. Overtime work should be compensated with time off rather than with pay premia in order to save jobs. Individual working time is regulated through working time accounts, in order to allow further flexibility. Each employee has 26 to 30 days' annual leave (depending on length of service).

In October 1998, trade unions and DB AG agreed to an extension of an existing "pact for jobs" (Beschäftigungsbündnis) until the end of 2002 (DE9810277N). During this period, the companies undertake not to make redundancies, while in return the unions commit themselves to supporting constructively the process of restructuring. This means that they agree to flexible working time and more flexible employment, and will encourage employees to be more mobile. Nevertheless, the reorganisation of DB AG has already led to an enormous reduction of the workforce (see table 1 below). In April 1997, a "service centre" (Dienstleistungszentrum), called "DB Arbeit", was founded in order to form a sort of internal labour market and support a "socially acceptable" change of staffing. Those employees who have lost their jobs through rationalisation are able to enter this centre, which receives financial support in return for offering advanced training and careers information. A means used of getting the people involved back into permanent work is the use of fixed-term employment relationships rather than redundancy. In 1998, a total of 10,050 employees were catered for in this centre. For about one-third a job was found within the group; another third left the concern through the use of existing schemes such as early retirement and severance pay; and the final third became unemployed, and DB Arbeit was still trying to find employment for them.

The current debate

The new chair of the DB AG board, Klaus Mehdorn, initiated the current debate on German rail services when he made public his plans for the company's economic rehabilitation. He directed attention to passenger transport, which in his opinion needs to be harmonised. As described above, DB AG is divided into five subsidiary companies with separate spheres of activity. This separation is now seen as a key obstacle in the path of success for DB AG. Mr Mehdorn proposes to keep the separate companies but emphasises that the management should secure an overall standard of service, probably by giving the responsibility for the whole of passenger transport to only one manager (instead of two). This step would revoke one part of the railway reform which became effective one year ago. The DB AG chair further announced that the DB group will cut personnel costs by about DEM 3 billion by 2004. This would be equivalent to a retrenchment of about 70,000 jobs. Mr Mehdorn declared that the company is trying to make rationalisation as socially acceptable as possible by taking advantage of early and partial retirement, voluntary departures and "natural wastage". In addition, alternative employment with another firm should be found for some employees, working time should be reduced and the number of new recruits should be reduced. These steps should be discussed by the social partners within the scope of the Beschäftigungsbündnis.

In a press release, GdED expressed mixed feelings on the current discussion on reversing some of the effects of the second step of the railway reform. It agrees with the board's proposal to regroup some DB AG subsidiaries in order to prevent inefficiency and present the company as a single unit, particularly since it had warned against these effects before the second step of the railway reform. At the same time. it opposes Mr Mehdorn's intention to combine this restructuring with a reduction of services and thereby a further reduction of staff. GdED insists on the observance of the "pact for jobs" which rules out redundancies until 31 December 2002. Securing employment, it is claimed, should be the main priority in further restructuring. The union further criticises DB AG for planning to invest only in profitable railway networks and neglecting local traffic and rural areas, instead of following an expansive market policy. This, says GdED, will not only negatively influence customer satisfaction and in the long run create a negative picture of the company, but also miss the target of achieving more "traffic on the network". GdED proposes urging the government to improve the general conditions for supporting railway transport rather than road transport, especially in terms of goods transport. This means that the competitive disadvantages of DB AG - such as being responsible for all the costs of maintenance of the railway system, or paying full value-added tax as well as the full tax rate for mineral oil - should be abolished. Financial assistance should also be given to the railways after 2002.

Commentary

The restructuring of the federal railways into a joint-stock company and the establishment of subsidiary companies has been a difficult task and has not yet been completed. With the division of DB AG into five separate organisations, jobs and responsibilities have been changed very frequently. It seems that the cooperation between the individual organisations is not as good as it should be and they sometimes work against each other instead of acting as parts of one company. This not only adversely affects the economic success of DB AG but also creates substantial uncertainty among the employees. This uncertainty has resulted to a high degree from the enormous reduction of the workforce which has put the employees under pressure. It is unlikely that a further reduction of staff will solve the recent problems of DB AG. This might lower costs but it will not help to make the company more competitive, which seems to be mostly a problem of service and fares. Increasing the level of goods transport by rail could be an important target from an economic and ecological perspective, which cannot be solved by the social partners alone, but requires the support of the government. (Alexandra Scheele, Institute for Social and Economic Research, WSI)

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