Coverage of collective agreements and works councils assessed

Germany's Institute for Labour Market and Employment Research published new figures in September 2003 on the coverage of collective agreements and works councils. According to the research, collective agreements and works councils continue to be the key pillars of the 'dual system' of interest representation that characterises German industrial relations.

At the end of September 2003, the Institute for Labour Market and Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) - the research arm of the Federal Employment Services (Bundesanstalt für Arbeit) - published figures on the coverage of collective agreements and works council s. The figures for both the number of private sector firms (with at least five employees, as this is the workforce-size threshold above which a works council may be elected - DE0309201T) and the number of employees that are covered by both a collective agreement and a works council indicate that the influence of collective agreements and works councils remains significant, at least as far as the number of employees is concerned.

Still important pillars of industrial relations

According to the IAB research (see the table below), in western Germany in 2002, some 53% of companies were covered by a collective agreement of some sort - either an industry-wide agreement or a firm-level agreement (Haustarifvertrag) - and 68% of employees worked in a firm covered by a collective agreement. These figures for western Germany are much higher than those for countries such as the USA, Japan, the UK and the new Member States joining the EU in 2004 (TN0212101F and TN0212102S). In eastern Germany, the coverage of collective agreements has, traditionally, been lower. In eastern Germany in 2002, 30% of companies with at least five employees were covered by a collective agreement, and 50% of employees were covered by an agreement.

However, it should be noted that these figures underestimate the influence of collective agreements, as about 40% of firms without a collective agreement in both eastern and western Germany orientate themselves towards the terms and conditions laid down in collective agreements. These firms employ about 50% of those employees that are not directly covered by a collective agreement, according to estimates (DE0301201F).

Similarly, works councils, in terms of the number of employees that work in a firm with such an employee representation structure, play an important role (see the table below): 50% of employees in western Germany and 40% of their eastern German colleagues work in a firm with a works council. However, the fact that just 11% of firms in both the old and new federal states have a works council shows that works councils are mainly a feature of large firms.

Coverage of collective agreements and works councils, 2002
. Western Germany Eastern Germany
% of firms % of employees % of firms % of employees
Covered by an industry-wide collective agreement 50 61 23 35
Covered by a firm-level collective agreement 3 7 7 15
With a works council 11 50 11 40

Note: Firms defined as those with at least five employees, agricultural sector excluded.

Source: IAB-Panel Dataset; IAB; own calculations.

Basic model

Overall, the IAB research suggests the following basic 'dual system' model of current industrial relations in Germany.

  • It tends to be large firms that are most frequently covered by both a collective agreement and a works council. In 2002, about 44% of employees in western Germany and 32% of employees in eastern Germany worked in firms that were both covered by an 'official' collective agreement and had a works council. Firms with both a collective agreement and a work council represented 9% of all firms in western Germany and 8% of all firms in eastern Germany.
  • In 2002, some 43% of firms in western Germany employing 25% of the western German workforce, and 22% of firms in eastern Germany employing 18% of the eastern German workforce, were officially signed up to a collective agreement although they did not have a works council. This highlights the fact that small and medium-sized companies - in terms of the numbers they employ - can also have a major interest in adhering to a collective agreement. The fact that these companies have signed up to collective agreements cannot be attributed to the wishes of a works council.
  • Firms that have a works council but are not covered by an official collective agreement are, overall, rather rare - 2% of firms in western Germany and 3% in eastern Germany. However, they employ a disproportionately large number of workers, accounting for about 6% of the workforce in western Germany and 9% in eastern Germany. This suggests that such firms are large or medium sized enterprises. Research indicates that works councils tend to favour collective agreements and thus many firms within this group may orientate themselves towards the terms and conditions laid down in collective agreements without, however, committing themselves to such an agreement.
  • In small firms with at least five employees, the terms and conditions of employment tend to be laid down only by individual employment contracts. Some 45% of firms in western Germany employing 25% of the western workforce and 67% of firms in eastern Germany employing 42% of the eastern workforce are neither covered by an official collective agreement nor have a works council. Once again, however, some of these companies orientate themselves informally towards the provisions of collective agreements.

Large and medium-sized enterprises, in particular, see the benefits of a collective agreement and, to a lesser extent, a works council. The reasons cited for this are simple: such arrangements enable many such companies, first, to reduce their negotiating cost and, second, to maintain 'industrial peace' within their company. The fact that the majority of employees are covered by a collective agreement or work in a firm with a works council (or work in a firm with both) in spite of the changes in the world of work over recent years is, not least, connected to the increased flexibility of both institutions. For instance, since the mid-1980s, working time has become more flexible, and, since the 1990s, 'opening clauses' and 'hardship clauses' that enable firms together with works councils temporarily to suspend adherence to some of the terms and conditions laid down in the collective agreement have been increasingly included in sectoral collective agreements (DE0312202F). The use of these opening and hardship clauses usually requires the agreement of the social partners who signed the sectoral accord; however, on rare occasions, the agreement of the social partners is not necessary for a temporary suspension of the collective agreement's terms and conditions. Such developments have acted as 'buffers' to meet the increased desire for greater flexibility (DE0307107F).

Commentary

The German collective bargaining system has long been characterised by stronger links between firm-level and supra-firm level regulations than in many other countries. The interplay between these two levels has, since the mid-1980s, entered a state of flux, as, from that time, a process of 'decentralisation' in collective bargaining has taken place. This decentralisation of bargaining has meant a continual increase in the importance of firm-level negotiations - including the importance of works councils. Moreover, the dual system of interest representation is much less established in eastern Germany than it is in the rest of the country. Nevertheless, both collective agreements and works councils - either individually or together - remain key pillars of the German labour market. They are also likely to feature among the key interests of important actors in the future, even if both institutions, according to the current consensus, are or have been subject to a - strong or weak, depending on the analyst’s viewpoint - process of erosion. One thing, however, seems clear: in view of the continuing high rate of unemployment and ever increasing competitive pressures, as well as the necessity on the part of companies to react more quickly and more flexibly to these pressures, yet further reforms are required. These reforms will have to go beyond existing measures, if important pillars of German industrial relations are to be made fit for the future, it has been argued. (Lothar Funk, Cologne Institute for Business Research, IW)

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