Impact of company relocations on working conditions

In March 2007, the Institute of Economic and Social Research (WSI) published a study on the effects of company relocations on works councils and employees. The findings are based on the 2004–2005 WSI works council survey, which covers up to 2,000 private sector companies with at least 20 employees. The survey represents the first data collection and analysis of the position of works councils with regard to the experience of relocation. The findings show that, in Germany, the threat of relocation is more widespread than actual relocation. It also reveals that works councils are under considerable pressure to agree to cutbacks in relation to working conditions, working time and pay.

In March 2007, the Institute of Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) within the Hans Böckler Foundation (Hans Böckler Stiftung) published the findings of a study on Company relocation: The consequences for employees. The findings are based on an analysis of the 2004–2005 WSI works council survey. On a representative basis, this survey regularly monitors developments in a sample of 2,000 private sector companies with works councils. It covers all sectors and company sizes ranging from a minimum of 20 employees.

Talks on relocation

In 16.2% of the companies surveyed, works councils reported that talks on relocations took place between 2003 and 2005. Of all the companies that considered relocation, about half of them relocated (57.4%), which corresponds to 9.2% of all the companies surveyed. In all, 28% of companies that effectively changed location moved abroad, while 72% of relocations took place within Germany. Companies in western Germany experienced a greater emphasis on relocation talks than those in eastern Germany, totalling 17% and 12% of companies, respectively. Relocations are implemented slightly more rapidly in companies in the western than in the eastern part of the country (58% and 52%, respectively).

In a sectoral comparison, talks on whether to relocate vary considerably within the various sectors of economic activity. In the investment and durable goods sector, some 35% of companies held talks on relocation and 23% of them subsequently relocated. Financial services companies such as those in banking and insurance came a close second in this regard (33% and 22%, respectively) (Table 1). In about one in five companies (20.8%) in transport and communications, talks on relocation took place, while relatively few companies in the wholesale and retail trade (6%) or construction (8%) entered into such talks.

Table 1: Works councils reporting talks on or actual relocation, by sector (%)
Proportion of works councils reporting that the company engaged in relocation talks or actual relocation, by sector (%)
Sector Relocation talks Actual relocation
Raw materials/industrial goods 19.1 8.7
Investment anddurable goods 34.7 23.4
Consumer goods 26.4 13.7
Construction 8.1 2.0
Wholesale andretail trade 6.3 1.3
Transport andcommunications 20.8 13.6
Financial services 32.9 21.7
Other private and public services 2.8 1.1
All sectors 16.2 9.3

Source: WSI works council survey, 2004–2005

Significance of threatened and actual relocation

A marked discrepancy exists across all sectors between threatened and actual relocation. In other words, while many companies contemplate and discuss a change of location, only some of these companies actually did relocate their business. This primarily concerned companies operating in the production of goods, particularly those companies in labour-intensive manufacturing industries with generally high labour costs in Germany. Manufacturing operations are also the principal business areas of a company to have been relocated abroad.

Economic situation

Businesses holding relocation talks are in most cases economically secure and well established. In 82% of the surveyed companies considering relocation, the respective works council believed the economic situation to be ‘good’ or even ‘very good’ within the company. According to the authors of the analysis, German companies do not move abroad for reasons of economic necessity but rather to further secure, or even improve, their economic position.

Employment effects

In general, relocation – both threatened and actual – is associated with job cuts. In 61% of companies holding relocation talks and in 68% of companies that relocate, works councils reported a decrease in employment. Moreover, the decline in employment in companies where discussions on relocation were conducted is not uniform across the sectors. Although only a minority of works councils (37.5%) in companies in the raw materials and manufacturing industries report negative effects on employment, more than two thirds of works councils report such a negative effect in the transport and communications sector (67.7%) as well as in financial services (69.2%). The quantitative extent of such job losses remains unclear, however, since the WSI works council survey does not provide information on redundancies and employment.

Consequences for works councils

Relocations put additional pressure on works councils. When looking at the areas of activity of works councils, the study highlights that, although the tasks of works councils tend to focus on safeguarding jobs in general, this aspect of their work intensifies significantly as soon as relocation talks are underway (Table 2).

Table 2: Activities of works councils in companies engaged in relocation talks or actual relocation, by comparison with all works councils (%)
Activities of works councils in companies where relocation is an issue compared with the overall answers of works councils in the survey
Areas of activity All works councils Companies engaged in relocation talks Companies that have relocated
Employment security 58.8 65.1 65.7
Partial retirement 53.4 67.1 64.1
Redundancies 52.7 72.3 78.5
Protection against dismissal 46.4 48.3 43.6
Redundancy plan 37.2 56.7 70.4
Outsourcing of parts of company 29.9 53.4 66.3
Closure of parts of company 23 36.3 49.2
Mergers with other companies 13.5 33 34
Change in work organisation 57.2 65.8 67.4

Source: WSI works council survey, 2004–2005

Impact on working conditions

The survey findings indicate that employees’ working conditions have deteriorated both in many companies that have carried out relocation as well as in those that have threatened to do so (Table 3).

Table 3: Works councils’ responses to the question of whether working conditions have deteriorated following threatened or actual relocations (%)
Responses of works councils to the question of whether working conditions have deteriorated following threatened or actual relocations (%)
Positions of works councils Yes No
All companies with works councilsinvolved in relocation 47.8 41.4
Companies that did not relocatein the end 46.4 43.5
Companies that relocated 48.9 39.9
Companies that relocated domestically 52.9 31.6
Companies that relocated abroad 38.5 61.5

Note: Where percentages do not add up to 100%, the differential can be explained by ‘no answer’ or ‘do not know’ answers from the respondents.

Source: WSI works council survey, 2004–2005

Working conditions deteriorated in almost 47.8% of all businesses that held talks on relocation. According to the works councils surveyed, working conditions worsened in particular in those companies that relocated within Germany. It seems that working standards in Germany are probably less compromised if, for example, a company merely transfers production abroad but continues to manage other business areas of the company as before.

Working conditions deteriorate primarily in terms of working time and pay. Thus, 20.5% of all works councils which, in the course of relocation talks, had to make compromises in relation to working conditions for their employees, report having to agree to pay cuts, while 17% report extended working time as an outcome of negotiations. If the findings are looked at separately for companies that have relocated and for those that have not yet done so, it becomes evident that employers have achieved pay cuts and extended working time more often in cases where relocation was threatened. In companies that held relocation talks but did not relocate at the time of the survey, 28.5% of works councils reported concessions on pay and 31.4% revealed conceding to an extension of working time. By comparison, in companies effectively relocating certain business areas, only 15% of works councils reported concessions on pay and only 6.9% agreed to extended working time.

Commentary

Relocation is not a temporary phenomenon, but one that has acquired a major place in the way companies are managed. The study emphasises how important it is for employees to get involved in the company relocation process, in addition to identifying substantial challenges for works councils and trade unions. If employee representatives want to be prepared for relocation negotiations, they have to develop effective counter-strategies even before relocation talks commence.

Heiner Dribbusch, Institute of Economic and Social Research, WSI

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