German big guns put pressure on trade unions to increase working hours

By Anna McLauchlin

Date: 02/09/04

LARGE employers in Germany are pressing to increase working hours, arguing that unless the trade unions give ground they will lose out to global competition and to cheaper labour elsewhere in Europe.

Siemens, the German electronics conglomerate, set the ball rolling at the end of June when it clinched a deal with the traditionally powerful German Metalworkers Union (IG Metall). The group said that for two years it would scrap plans to move 4,000 jobs to Hungary if employees at two of the firm's mobile phone plants agreed to work five hours with no extra pay on top of their weekly 35 hours

DaimlerChrysler quickly followed suit in July, announcing it would secure 6,000 jobs until 2012 in exchange for increasing working hours gradually to 39 hours a week. And last week Volkswagen and Opel made similar demands, with VW gunning for a two-year pay freeze in its six western Germany plants as well as longer hours for young workers and performance-related pay for a third of its employees

Mark Werding from the Ifo research institute in Munich says the unions will have to accept employers' demands

"In Germany it is the big industries that lead the way", he says. "Volkswagen has to restore competitiveness against Daimler and the unions are in a weak position because everyone will now refer to the precedent."

Germany's labour market problems are of long standing. Werding says the rot set in around 20 years ago when IG Metall secured a 35-hour working week in an attempt to combat unemployment. While the move had no obvious effect on unemployment, it drove up labour costs. The Confederation of German Employers' Associations (BDA) claims the reductions increased costs in west German companies by an average 7% between 1987 and 1997 but as much as 12% in manufacturing

Manufacturing in Germany now ranks among the highest for labour costs in the world, mainly because of high social security contributions and cushy benefits such as long paid holidays. But as far as collectively agreed working hours are concerned, the country languishes in the bottom third in the EU. In 2003 the contractual annual working time in west Germany was 1643 hours while the EU-15 average was 1708. The average working week is 37.5 hours

German industry is struggling to remain globally competitive while employees work the shortest hours but cost a fortune. And since new EU members are offering enticing labour conditions just across the German border, the pressure to move production is increasing. According to Siemens, a worker in Berlin earns €2700 per month compared with €500 in Poland. Asia can be an even more attractive option: a study from German car manufacturers association VDA shows the number of German cars being produced in China rose by 40% last year. The German government is thus faced with the challenge of supporting its companies' competitiveness but at the same time protecting employment figures. Chancellor Gerhard Schröder is already facing protests over the controversial Hartz IV law, which will significantly cut benefits for the long-term unemployed from January.

Although he has condemned an overall rise in working hours, when the Daimler deal was struck, Schröder said: "It is a forward-looking agreement that meets the demands and needs of both sides. It enables the company to be more flexible in the increasingly fierce international competition and will safeguard [German jobs]."

While the chancellor may support flexibility, members of the opposition have made blunter calls for a longer working week. The Christian Democrats and Free Democrats have both called for longer hours and even Schröder's Finance Minister, Wolfgang Clement, said last year that holidays and working hours had "reached the limit".

IG Metall is still a powerful union and says it will fight a general shift in working hours.

"That decision [at Siemens] was a special case and taken after the decision had been taken to move 4,000 jobs to Hungary. This only concerns 3% of the Siemens staff," argues IG Metall's Martina Helmerich. "It's true we are seeing more pressure from other enterprises but we are optimistic we can withstand the pressure."

Helmerich argues German labour costs can never equal those in eastern Europe and Asia and should maintain its competitive edge through innovation and specialization

But analysts think the trend for longer working hours is set to last. "I think we will see a long term average of around 40 hours for the working week," says Ralph Solveen from Commerzbank.

Economists also believe that overall increased working hours will benefit employment. Deutsche Bank estimates that a return to the 40-hour working week could reduce labour costs in the metal and electrical industry by 14% in Germany, and claims falling costs will lead to a surge in labour demand

IG Metall rejects this theory. "If we raise the working week to 40 hours that would mean six million people jobless versus 4.6 million now," says Helmerich

Nevertheless, with at least 50 more German companies looking to secure deals similar to those granted Siemens and DaimlerChrysler, including BMW, MAN AG and Lufthansa, IG Metall will have its work cut out to stem the tide

In Germany, several of the largest companies have pushed for longer working hours in order to reduce labour costs.