Can Labor Dull This Swiss Knife?

Proposed government cutbacks spark an outcry from workers

For usually tranquil Switzerland, it's turning into a hot autumn. As 15,000 farmers demonstrated in Bern against proposed cuts in agricultural subsidies in late October, police opened fire with water cannons and tear gas to break up the gathering. A few days later, 35,000 public-service employees took to the streets to decry government plans to shake up labor policy for the first time since 1964. Says Christiane Brunner, president of the Metalworkers & Watchmakers Union, who led the protest: "This country is getting worse every week."

Labor outbursts could intensify as the country's center-right government pushes its austerity program. The country is gearing up for a Dec. 1 referendum on whether or not to overhaul its labor laws. If the referendum is approved, the government will require workers to increase their workweek from 42 to 44 hours, without a pay raise, and stores will be allowed to open on Sundays for the first time. Union leaders fear that the government will also scale back Switzerland's generous pension and unemployment systems, although these issues won't be voted on directly. "The government wants to cut out social benefits. No way," Brunner says.

Copying their European neighbors, Swiss officials argue that revamping the labor law is absolutely necessary if the country is to give a real boost to its competitiveness. Swiss labor costs are soaring. In manufacturing, they total on average $29 an hour, rivaling Germany's $31, according to Morgan Stanley & Co. Finance Minister Kaspar Villiger also wants to rein in Switzerland's budget deficit, which now stands at 1.6% of gross domestic product. Like the rest of Europe, Switzerland needs to shrink its bloated public sector and slash subsidies to farmers.

"NOT THE TIME." Labor leaders and some economists argue that Switzerland's government is squeezing too hard. After stagnating for five years, the economy is expected to grow just 1% this year. Although interest rates are low, the Swiss franc is riding high against the dollar, hurting exports, which have stayed at about $79 billion a year since 1992. With the Swiss economy in a slump, says John Praveen, senior international economist for Merrill Lynch & Co., "this is not the time for fiscal austerity."

In their confrontation with the government, the unions have won one skirmish. After threatening strikes, workers at the Swiss state railroad forced management to back down on a plan to cut salaries by 1.5%. But now managers say they may cut housing allowances and freeze merit raises in exchange for that concession. The next battle could come over Swiss Telecom, where workers worry that pay cuts and layoffs may be on the way.

As the Dec. 1 referendum nears, union leaders say they plan to mobilize members for further protests. If thousands go out into the streets, the government may have to put up with more nasty clashes--or put austerity on hold.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE