Germany’s export-driven industry is embracing an asset closer to home: domestic workers.
BASF SE, the world’s largest chemicals maker, last month followed Siemens AG in granting job security for the 33,000 workers at its Ludwigshafen plant. Siemens, the biggest German company by market value, said in September it will indefinitely secure locations and jobs for all its 128,000 domestic employees in the most sweeping concession to local workers yet. Utility E.ON AG and carmaker Porsche AG have similar accords.
Unemployment in Europe’s largest economy has tumbled to the lowest level in 18 years, as companies seek skilled workers to sustain an economic rebound that shows few signs of cooling. The demand for local talent marks a shift from a decade-long trend of companies moving production abroad to escape high wages and German labor market regulation that hampered hiring and firing.
“The way BASF is positioned today in Ludwigshafen in terms of internal flexibility and social partnership arrangements, we now outclass any other region in the world in our industry,” said Hans-Carsten Hansen, head of human resources at the world’s largest chemicals company. “Sometimes I want to spend less time negotiating, but you get out what you put in.”
Back in Favor
Between 1990 and 2007, BASF reduced its workforce by more than 40 percent at its home site. Siemens, based in Munich, also chipped away at its domestic workforce. In 1995, the company had 203,000 workers in Germany, equal to 54 percent of the total, a figure that has since shrunk to 128,000, or 32 percent.
“German companies have progressed on the learning curve, with competition from abroad holding their feet to the fire,” said Ralph Wiechers, chief economist at the Frankfurt-based VDMA machine makers’ association. “The pendulum has swung back in recent years to balance out production abroad and at home.”
German workers have more clout than in other countries because they are represented in the highest echelons of company management. Every supervisory board of publicly traded companies is evenly split between representatives for management and employees. That system, unique to Germany, gives works councils and union members more sway over strategy, hiring and firing, as well as the pay of senior executives.
“When I left General Electric, I thought this can’t possibly work, you can’t run a company with all these labor representatives on the board,” Peter Solmssen, who joined Siemens’s management board in 2007, said in an interview in Munich on Dec. 1.
Solmssen, a U.S. citizen who oversees compliance at the engineering company, said he has since revised his opinion, as Siemens “gains more from working with the labor representatives than what we give up.”
Germany, with 82 million people and a gross domestic product of 2.4 trillion euros ($3.3 trillion), relies on an apprentice system rooted in the tradition of master craftsmen handing down their expertise to young people, producing a steady stream of qualified workers.
Siemens Chief Executive Officer Peter Loescher said he’s “desperately seeking engineers,” with about 3,000 unfilled positions in Germany, twice the number from the middle of last year. Most openings are for engineers, computer and natural scientists, according to Siemens.
The country may have a shortage of as many as 220,000 engineers and scientists by 2014, a deficit that may swell to 425,000 by 2020, the Cologne-based IW economic institute estimates. While the number of university graduates for engineering jobs is “somewhat encouraging” lately, the number of unfilled positions continues to rise, said Oliver Koppel, senior economist at the institute.
Siemens spearheaded agreements with workers for more flexible work hours in 2004, helping both sides preserve jobs even as demand dwindled. When the global financial crisis hit demand in 2008, the company put workers on reduced hours to avoid outright layoffs.
Daimler AG reduced hours of about 120,000 people, almost its entire German workforce in production and administration. Robert Bosch GmbH, the world’s largest automotive supplier, put as many as 100,000 of its 270,000 employees on shorter shifts.
“We demand noticeably higher flexibility from our employees, and this flexibility is a success story,” Juergen Hambrecht, CEO of BASF, told a conference on Nov. 25 in Berlin.
As a reward for concessions during the global economic contraction after 2008, Siemens aims to spend 310 million euros on a bonus for non-management employees and bring forward a 2.7 percent pay increase for workers in Germany. The company is also spending 100 million euros revamping facilities in Berlin, which remains its largest global manufacturing hub.
“The agreement is good for employees as it gives them secure jobs, and good for the company as it gives Siemens a competitive edge in getting skilled workers and engineers,” said Dieter Scheitor, who represents the IG Metall labor union on the Siemens supervisory board.
Reforms backed by employees helped make the German labor market more flexible. The government cut jobless benefits, asked workers to pay part of their health-care costs, and put pressure on the unemployed to take low-paid work. Companies were given more flexibility in their use of temporary workers. The government also subsidized the shortened working hour model.
The program supported up to 1.5 million employees at some 63,000 companies and saved as many as 478,251 jobs last year, according to the Federal Labor Agency.
“What’s been called the German job miracle was no miracle, but the result of preparation for critical times, noticeably shorter work weeks and higher flexibility,” Klaus Engel, CEO of Evonik Industries AG, said in Berlin on Nov. 25.
Germany’s unemployment rate dropped to 7.5 percent this November, the lowest in more than 18 years, from 9.1 percent in June 2007. In the U.S., it more than doubled to 9.8 percent from 4.6 percent in the same period. In 2005, Germany’s 10-year growth rate was half that of the U.S., and its unemployment rate more than double. Today, Germany is growing faster than the U.S.
“Germany’s network of industrial manufacturing is its own microcosm and the envy of other economies,” said Wiechers, the VDMA economist. “And that network remained intact during the crisis, unlike those of other countries, where holes started appearing. You can’t go fishing with a net that has holes.”
While wage restraint has helped Germany succeed, the greater flexibility over pay has come at a price. More than 7 million people in Germany work in the low-wage jobs today, according to estimates by the IG Metall labor union. Germany was the only one of 27 European Union countries where wages fell between 2000 and 2008, according to the Hans Boeckler Foundation, a union-sponsored economic institute.
Still, as the economy rebounds, workers in some industries are asking for their share of the recovery. Germany’s chemical workers union on Dec. 7 demanded up to 7 percent more pay. The IG Metall has demanded a 6 percent increase for workers at Volkswagen.
“This workforce has put in extra shifts without end to help satisfy demand,” Bernd Osterloh, the chief labor representative at VW, Europe’s largest carmaker, told 20,000 workers at its Wolfsburg headquarters yesterday. “There are more than 90,000 workers who stand behind this company. And that’s also why the economic crisis never really took hold at Volkswagen.”