German Workers Demand 6.5% Raise as Siemens Sees Recession

German Workers Demand 6.5% Raise
A Siemens AG branded hard hat sits on a component for a gas turbine propellers for use in power plants, at the company's factory in Berlin. Photographer: Michele Tantussi/Bloomberg

Two years of minimal wage increases have left Christoph Schoenau, a metallographer for auto and aircraft component maker GKN Plc at a factory near Frankfurt, feeling left out of Germany’s economic rebound.

Schoenau, 39, is one of 3.6 million workers in the metal and electrical industries clamoring for as much as 6.5 percent more in their paychecks when unions lock horns with employers next month. That’s after Germany’s economy, the largest in Europe, registered 3 percent annual growth last year and 3.7 percent the year before, the most since German reunification.

As manufacturers from BASF SE to Volkswagen AG prepare to report a surge in 2011 earnings, workers are calling for a bigger share of the spoils. Employers contend that raising costs above productivity gains would hurt Germany’s competitive advantage as Europe risks slipping back into recession.

“There’s always a reason why labor representatives are pressed to hold back,” said Schoenau, who checks the quality of axle components for cars in Offenbach. “Regardless of whether we are in a recession, or at the beginning or the middle of a recovery, employers always say that there is no room for a decent wage increase.”

The last agreement between the IG Metall union, of which Schoenau is a member, and employer representatives for the metal and electrical industry was in May 2010. It produced a one-time payment of 320 euros ($420), with a 2.7 percent pay increase delayed until April 2011. The accord runs out at the end of March, with talks for a new deal starting next month.

‘Fair Increase’

“Workers more than deserve a fair increase in wages,” IG Metall Chairman Berthold Huber said at a press conference in Frankfurt today, where the union presented its wage recommendation to the regional negotiation groups.

The duration of accords is typically used as a bargaining tool by both sides, and agreements in the past have run anything from 12 to 36 months, according to IG Metall. The union is seeking a fresh accord well into next year, and both sides remain bound to a truce agreement until the end of April before any labor strike could take place.

“We are under pressure from our membership because they went through two years of low wage increases and demands from management for salary reductions because of the crisis,” Christian Brunkhorst, an IG Metall board member, said in an interview. “They see that German companies are doing pretty well and make extra profits with overtime work and weekend shifts.”

Balancing Requirements

Even though the union has to balance the short-term demands of the workforce with the long-term requirement of the company to remain competitive, it may still demand more than in the past because of the “excellent situation of the companies,” said Brunkhorst, who is responsible for the automotive sector of the trade union’s policy department.

Germany’s VDMA machinery-manufacturers association said the union’s demands are “far from reality” and today predicted order intake for plant and machinery equipment in the country will fall further in the months to come, following double-digit declines in November and December.

Carmakers including Bayerische Motoren Werke AG and Volkswagen are expected to post record earnings for 2011 next month as demand for their vehicles climbs in China and spending recovers in the U.S. Linde AG, the world’s second-largest industrial gas maker, is expected on March 9 to post record pretax profit, according to analyst estimates. Siemens AG, Europe’s largest engineer, is sitting on a record order book.

German Exports

German exports probably exceeded 1 trillion euros for the first time last year as demand from developing states offset waning sales in Europe, the Berlin-based BGA Exporters and Wholesalers group said in November.

GEA Group AG on Feb. 6 said operating profit last year was the highest in more than 10 years and it expects sales and profitability to rise further this year. MTU Aero Engines AG is scheduled on Feb 23 to report the highest annual pretax profit since the company was listed, according to analyst estimates.

German unemployment dropped to a two-decade low in January, bolstering economic growth as the sovereign-debt crisis prompted companies from Spain to Greece to cut jobs. Germany’s economic expansion has helped soften a slowdown across the region as companies boost output and hiring.

Still, Europe’s largest economy is cooling as slower global growth and weaker demand from debt-stricken euro-area neighbors erode sales. Siemens said last month that meeting targets for this year has become harder and it predicted that Europe will slip into recession.

Employers’ View

“We know the sword of Damocles pertaining to economic development,” Martin Kannegiesser, president of the Gesamtmetall employers’ association, said in a statement on the group’s website. “I’m sure we’ll see higher wages but one should not expect that the sky should be the limit.”

BASF, scheduled to report annual earnings on Feb. 24, may post an 8.3 percent increase in earnings before interest and taxes, the highest operating profit in the company’s 146-year history. Still, the BAVC chemical manufacturing employers association urged restraint before it starts negotiations with union representatives next month.

“Last year we agreed on the highest increase in Germany with 4.1 percent,” said Sebastian Kautzky, spokesman for the BAVC. “Now it’s about the future economic development. I hope that the unions take the economic reality of 2012 into account when considering their demands.”

Wages Versus Inflation

Average gross pay per hour stagnated while inflation rose 1.2 percent in 2010, and pay gained 2.8 percent with inflation at 2.5 percent last year, according to the Federal Statistics Office. Germany may avoid a recession as the low level of unemployment supports consumer spending, economists including Aline Schuiling at ABN Amro in Amsterdam said last month.

Jens Kramer, an economist at NordLB in Hanover, said he also isn’t expecting a recession in Germany and that higher wages would boost domestic demand, which was the main driver of the economy last year. Average wage increases will probably come in at about 3 1/2 or 4 percent although it will be different from industry to industry, he predicted.

“Wage increases this year could reasonably be a bit juicier than in the past,” Kramer said. “It’s justified because the wage cost development in Germany has been extremely cheap.”

Outpacing Germany

Increases in employment costs of all euro nations outpaced Germany’s in the decade through 2010. German hourly labor costs rose an average 1.7 percent per year, while they jumped 2.9 percent in Portugal, 3.2 percent in Italy, 3.4 percent in Greece and 4.1 percent in Spain, the labor union-affiliated IMK institute in Dusseldorf said Dec. 12. The figures were based on calculations from Eurostat, the EU statistics agency.

Schoenau, the worker for GKN, said that although he’s weary of excuses from executives to avoid a boost in pay, he hasn’t given up. His union has indicated it’s ready to support workers should they decide to take the battle to the streets.

“Our strike fund is nice and full,” said Detlef Wetzel, vice chairman of IG Metall.

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