Siemens deal launches debate on longer working hours

In June 2004, the German Metalworkers' Union (IG Metall), reached an agreement with the Siemens electronics group to increase weekly working hours from 35 to 40 at two mobile phone plants, with no extra pay for the workers involved. The agreement is an attempt to prevent jobs being 'exported' from Germany. Though both sides have sought to play down the deal's significance in national terms, the agreement has sparked a debate about whether a new 'concession bargaining' culture is emerging in Germany. About 50 German companies appear to have concluded such supplementary agreements to improve competitiveness at the firm level, while a similar number are seeking to do so.

On 24 June 2004, a plan by the German-based electronics group, Siemens, to move 2,000 jobs from North Rhine-Westphalia to Hungary was cancelled as a result of the conclusion of a 'supplementary agreement' (Ergänzungstarifvertrag) by management and the German Metalworkers’ Union (IG Metall. The agreement applies to the 4,000 employees at the company's mobile phone plants in Bocholt and Kamp-Lintfort (North Rhine-Westphalia).

The Siemens deal, which took effect on 1 July 2004, means that from 1 October 2004 average weekly working hours will be increased to from 35 to 40 hours for full-time workers. Specifically, full-time employees will work a normal 1,760 hours a year, excluding leave and public holidays, which averages out at 40 hours a week until the supplementary agreement expires on 30 June 2006. This should gives Siemens the flexibility to adapt working time to changes in demand: it will be able to increase production when there is more work and, conversely, have people work less when there is less work to be done. No additional payment will be made for the five extra hours work per week on average. Furthermore, Christmas and holiday bonuses (which taken together amount to approximately one month’s pay) will be replaced by an annual payment based on performance, amounting to a maximum of 45% of a month's pay. This change will become effective on 1 October 2004. In exchange, management has guaranteed not to relocate jobs within the next two years and promised to invest a reported additional EUR 30 million in the plants.

The supplementary agreement for the two plants in Bocholt and Kampf-Lintfort is based on a framework agreement (Rahmenvereinbarung) that was also agreed on 24 June 2004 by representatives of Siemens management, the works council and IG Metall. This framework agreement applies to all 105 Siemens establishments (Standorte) in Germany on a compulsory basis. It stipulates that supplementary agreements (such as those at Bocholt and Kampf-Lintfort) can be concluded only if all opportunities at firm level have been exhausted. During the period of such supplementary agreements, a 'guarantee of safety' (Bestandssicherung) will apply to the affected plant. According to Berthold Huber, vice-chair of IG Metall, 'this framework agreement is a big success for employees; it shows that alternatives exist to unimaginative job cuts and the outsourcing of jobs to foreign countries.'

In March 2004, management at Siemens had announced its intention, if unions did not make concessions to reduce personnel costs, to relocate at least 2,000 jobs from the two plants to Hungary, a new Member State of the European Union since May 2004. Hungarian production costs are 30% lower than those in Germany, according to Siemens management, due to significantly lower wages.

DaimlerChrysler demands major cost-saving measures

Discussions similar to those at Siemens are currently being held between management and the works council at DaimlerChrysler, the German-US vehicle producer. On 12 July 2004, DaimlerChrysler warned that 6,000 jobs could be cut in southern Germany and production of its new C-class Mercedes shifted either to Bremen, where cars cost less to produce, or South Africa if trade unions did not agree to annual cost savings of EUR 500 million a year. DaimlerChrysler management wants concessions from its employees. In particular, it plans to cut special five-minute hourly breaks and bonuses that workers currently receive for working afternoon and late shifts at DaimlerChrysler’s main production facilities in Sindelfingen. These particular benefits are not granted to DaimlerChrysler workers at the plant in Bremen. Additionally, the latter also have fewer public holidays. 'If we don’t get rid of this Baden-Württemberg disease, it will come to massive job cuts,' said Jürgen Hubbert, DaimlerChrysler’s management board member in charge of the Mercedes brand, in a controversial comment.

DaimlerChrysler workers' representatives reacted by launching a nationwide 'action day' to protest against the company’s cost-cutting plans on 15 July. IG Metall estimated that more than 60,000 workers joined the protests. The company gave the workers in the Sindelfingen plant until the end of July to agree concessions that exceed the EUR 180 million annual savings from wage freezes offered so far.

Role of recent metalworking agreement

When announcing the need to cut costs to their employees, both Siemens and DaimlerChrysler have been able to rely on a clause in the new sectoral collective agreement signed by IG Metall and representatives of employers in the metalworking and electrical industry in February 2004 (DE0403203F). It allows the bargaining partners to deviate from sectorally agreed provisions, in areas including the extension and reduction of working time, with and without wage compensation, in certain cases if this proves necessary to achieve a sustainable development of employment.

Other developments

Observers believe that agreements to lengthen weekly working time, in some cases without any additional pay and in exchange for agreeing not to make any redundancies, are under discussion at a number of flagship companies across a range of industries in Germany. These include the Bosch electronics engineering group, the car producer Opel (the German subsidiary of General Motors), the tyre maker Continental, the state-owned Deutsche Bahn AG railway company, the leading German machine and equipment maker and truck manufacturer MAN, and the Thomas Cook tourist group. According to the Wirtschaftszeitung Aktiv magazine of 17 July 2004, 'many small and medium-sized enterprises have made similar deals, but their names cannot be listed here as managers and works councillors have agreed not to go public.' Martin Kannegiesser, the president of the employers’ federation for the metalworking and electrical industries (Gesamtmetall), said on 15 July that the association is aware of 50 establishments that have so far signed a supplementary agreement to improve competitiveness at the firm level. A further 50 firms are currently attempting to negotiate such an agreement, according to Mr Kannegiesser.

Reactions

Jürgen Peters, the chair of IG Metall, has stressed the unique nature of the Siemens case: 'Anybody who wants to make a precedent out of the justified deviation in this concrete case knows nothing about collective bargaining.' Furthermore, he denied reports in the press that hundreds of German companies were trying to follow the lead of Siemens, and he added that a universal 40-hour working week would serve as Germany’s 'biggest job destruction programme since World War II'. Heinrich von Pierer, the chair of Siemens, has stressed repeatedly that the 40-hour working week would not be reintroduced across the board at Germany’s largest electronics company, which employs 167,000 workers in the country. Thomas Vajna, managing director of Gesamtmetall, said that 'nothing else was done apart from using the toolkit provided by the collective agreement hammered out in February' that allows firms to lengthen working time and cut bonuses if this saves jobs.

Some representatives of employers and business praised the deal struck by Siemens and IG Metall as a role model that will serve to increase the international competitiveness of German companies. According to Dieter Hundt, the president of the Confederation of German Employers' Federations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), the Siemens example could well 'help create a new collective bargaining culture'. With regard to DaimlerChrysler, he added that if no agreement is reached, 'many jobs that could be saved, would be lost'. Mr Kannegiesser of Gesamtmetall said with regard to the current discussion that 'in order to secure as many industrial jobs in Germany as possible, we are both willing and able to fight against the cost-driven relocation of production abroad'.

Moreover, among economic experts a contentious debate has developed as to whether extending the working week would help or harm the German economy, either by improving its competitiveness through higher investment spending due to increased profitability and higher exports, or by dampening consumer spending that risks causing deflation.

Commentary

The decision by IG Metall to accept longer hours for workers at the two Siemens plants in North Rhine-Westphalia signals a noteworthy change in a policy which had been a central plank of this trade union’s approach since 1984, when the 35-hour week was established in metalworking after a seven-week strike. Even if, in particular, trade union leaders have stated that the Siemens agreement does not have national significance, the ongoing debate demonstrates its symbolic role. If employees’ representatives have to make noteworthy concessions in the DaimlerChrysler case at Sindelfingen as well - ie changes to agreements that decrease or eliminate extra pay for late shifts and five-minute breaks every hour, effectively leading to an increase in the working week without more pay - many other German companies might venture down a similar road.

Even if the 35-hour working week has not been established fully throughout Germany (DE0306109F), the reduction of working time that has occurred has, at the very least, not prevented Germany from suffering a persistently high unemployment rate. Indeed it can be argued that the reduction in working hours without adequate decreases in labour costs is probably one of the main causes of high unemployment. In the face of alternatives such as cutting jobs and slashing bonuses, many economic experts agree that working longer is likely to be the least painful way to greater prosperity, given that German working hours are in general comparatively low and costly, and in the industrial sector they are among the world’s shortest with very high labour costs (DE0310101N).

Some critics of the Siemens deal argue that the plants’ workers have won only a two-year commitment to save the current jobs, and expect their loss soon after the deal expires. In this particular case, they expect that further extensions of working time and pay reductions on a 'per hour worked' basis will follow one another in an endless spiral. Alternatively, it can be argued, however, that Siemens has also agreed to invest substantial sums in the two German plants in exchange for the workers’ concessions. This makes it less likely that management will 'leave it all behind' to invest in new plants in eastern Europe. (Lothar Funk, Cologne Institute for Business Research, IW)

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