European labour reform. Keep up the momentum

Government inaction is forcing firms in Germany and France to try to kill the 35-hour week

SIEMENS managed it; DaimlerChrysler got halfway there. In the past few weeks these two companies have forced the powerful IG Metall trade union to accept deals that erode, if not quite repeal, the principle of the 35-hour week. The applause has been huge, from both sides of the political spectrum, but the hard-core at IG Metall and its white-collar sister, Verdi, insist that they will not let the 35-hour week die.

Nor, it seems, will France's conservative government: it has so far only tinkered with the law introduced by the Socialists four years ago. In the autumn it may go further, but not far enough - for fear of riots. That is despite the admission, even among many Socialist Party officials, that putting the 35-hour week into law was a mistake. It is holding back economic growth and the competitiveness of French firms, scaring off foreign investors and killing job creation.

In Germany the 35-hour week, introduced in the decade before 1995, is one of many factors that have raised labour costs to levels that have stifled growth and dulled productivity. The reform programme launched by the government last year hardly touches labour agreements or the power of workers' representatives within a firm. However, the government is dismantling parts of the social safety net: from January 2005 it will be far less comfortable to be unemployed in Germany. As a result workers are somewhat keener to make compromises to save their jobs. That has strengthened the employers' hand. KarstadtQuelle, Thomas Cook, and MAN are among those now pressing for a 40-hour week. So is a French subsidiary of Robert Bosch. But to date that is the only company in France that has dared. After a few opening salvoes, other French firms have tiptoed back to the statutory 35 hours.

Death warrant

Privately more and more companies in Germany are preparing deals with their workers that raise the bar to 40 hours or ignore a benchmark altogether. Siemens was only the most visible pioneer, but its action was hailed as a breakthrough on both sides of the Rhine. It persuaded its workers, and their union IG Metall, to accept a week of up to 40 hours, with no extra pay, to avoid the relocation of Siemens's mobile-phone production to Hungary. “Blackmail,” said a union spokesman, refusing to compare it with DaimlerChrysler's craftier compromise last week: longer hours for its research engineers (the boffins are glued to their computers anyway), while the production line in southern Germany will gradually forfeit wage increases and other perks. In return, Daimler has promised workers job security for eight years. The spectre at the feast, carefully not mentioned, was the 35-hour week. Every corporate manager in Europe knew the 35-hour week had been dealt a blow. IG Metall still swears it is intact.

Yet unless the beast is properly killed, every major labour negotiation will end in a Daimler-like compromise or worse. Daimler has the luxury of sitting on a profitable car business, even if it cannot match the margins of BMW and Porsche. But “people's car” producer Volkswagen does not: it employs more people to produce each car than any of the above. VW, owned 14% by the state of Lower Saxony, tends to indulge its workforce. It has won flexibility from its workers' representatives and IG Metall, while paying lip service to the 35-hour week. In September, VW starts a new round of negotiations with its main workforce. IG Metall is already signalling that the 35-hour week is non-negotiable.

The unions are ignoring the near-unanimous chorus of economists, industry analysts, and even some workers' representatives who argue that the 35-hour week is unsustainable, given the low-wage competition from central Europe. The German worker may be super-reliable - an argument used by BMW when it decided to build a new factory in Saxony not the Czech Republic - but his job cannot survive competition from the East if his work day averages only seven hours.

Lengthening working hours is not the only answer. Politicians must do more than talk about revising Germany's job-protection laws, which scare foreign investors and deter even indigenous firms from creating new jobs. Output must be increased by innovation and productivity gains, not by chaining employees to their workbenches.

But the psychological breakthrough in the German labour market should not be underestimated. It promises to gain momentum, then to put pressure on France. A convincing death scene for the 35-hour week, written by governments, is now sorely needed.

Editorial says: Government inaction is forcing firms in Germany and France to try and kill the 35-hour week.

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