Labour reform in Germany. Bargain basement

The trade unions are left with little room to negotiate

WORKERS at DaimlerChrysler plants in Germany took a “day of action” on July 15th to protest against proposed wage cuts and longer working hours. Yet if the carmaker cannot reduce labour costs by €500m ($600m) a year at its Sindelfingen plant in south-west Germany, it threatens to move production of the C-class Mercedes to Bremen (where staff work slightly longer hours), or to South Africa. This is only one of many poker games being played by German firms with unions as they seek to cut labour costs.

In today's economic climate, the bosses seem to be winning. Last month Siemens got the nod from the biggest blue-collar union, IG Metall, to raise its working week from the standard 35 to an average of 40 hours at two plants near Cologne. The argument was that this would save 2,000 jobs that would otherwise shift to Hungary. Siemens can now impose similar conditions at other plants under threat.

The 35-hour week, established in western Germany in the late 1980s and early 1990s, is still insisted on publicly by IG Metall and Verdi, the biggest white-collar union. But threatened plant closures and other hard-luck stories have forced concessions at, for example, Continental, a tyre company, and ThyssenKrupp, a steelmaker. Volkswagen is preparing for a showdown to cut labour costs by 30%.

Germans work fewer hours per year than workers in any other rich country except the Netherlands and Norway, according to the OECD. At DaimlerChrysler's Sindelfingen plant the workers get a five-minute break every hour. With that and local holidays they work 72 hours less per year than colleagues in Bremen. Lengthening the working week is a less painful way of cutting costs than trimming wages, even if it makes it little easier to find jobs for Germany's 4.4m unemployed.

That challenge is the focus of another labour-market reform that has just passed into law. Hartz IV, as it is called, merges social-security payments with the unemployment-benefit system. That may sound like paper-shuffling but it is, claims Matthias Platzeck, premier of Brandenburg, “the biggest social revolution in Germany since the second world war.” From January, the long-term unemployed, whose lives have been too cushy, will find the tap turned off if another household member is in work, or they have too many assets, or they are unwilling to take jobs offered.

It will be hard for any of these measures to make a big difference in places with high unemployment: in eastern Germany, for instance, average unemployment is 18.5% and there are areas where it is closer to 30%. But everywhere, say the polls, there is a growing readiness to be flexible to save jobs, including working longer hours. Perhaps not as long as Jurgen Kluge, who heads the German arm of McKinsey, and recently claimed to work between 70 and 80 hours a week. But the relentless fall in hours worked in Germany seems likely to be reversed over the next few years.

• Primary Source