Germany Inc. Scrutinized for Using Labor Like Paper Clips

Daimler Production
Workers are seen on the production line at the Daimler AG Mercedes-Benz factory in Sindelfingen. Photographer: Krisztian Bocsi/Bloomberg

By Birgit Jennen and Dorothee Tschampa

Oct. 24 (Bloomberg) –- Daimler AG is among German companies that have found a way to cut personnel costs in the high-wage country: buy labor like it’s paper clips.

By purchasing certain tasks such as logistics services from subcontractors, businesses can legally keep these workers off the payroll and outside of wage agreements with unions. That’s led to growing ranks of contract workers who help boost profit at German companies by lowering labor costs.

The downside is abuse of the system, which leaves some workers unprotected and even unpaid. That’s caught the attention of Labor Minister Andrea Nahles, who’s promising a crackdown, and forcing Germany Inc. to defend the practice.

“We can’t pay everyone the high wage” in union deals, Wilfried Porth, Daimler’s personnel chief, said in an e-mail to Bloomberg News. “Our cost situation has deteriorated compared to the competition. We can’t afford that.”

Proponents argue hiring subcontractors to provide services keeps Germany, where labor costs in the auto industry are the highest in the world, competitive. Opponents say the widespread practice in industries that include shipbuilding, retail, logistics and construction undermines the German labor model of a partnership between employers and workers.

Every third employee in the German auto industry is working either for a subcontractor or as a temporary laborer, according to a poll by IG Metall union published last November. Doing so has helped keep in check already high personnel costs, which amount to 48.40 euros ($61.27) per hour on average, according to the Berlin-based VDA auto industry group. This compares to 4.81 euros in Romania and 25.63 euros in the U.S.

Unpaid Work

What on the one hand helps retain German jobs and maintain international competitiveness, can also lead to the misuse of workers, who have little recourse to protect themselves. Take the case of Ertzment Tsilingir from Greece, who this past summer worked at a shipyard close to Wismar in eastern Germany.

Tsilingir said he worked seven-days-a-week, 10-hours-a-day as a contract worker and that, after nearly two months living in a run-down shack, there was still no paycheck coming in.

“We weren’t paid, we had hardly anything to eat and nobody seemed to care,” Tsilingir said in a telephone interview. He worked for a subcontractor of a subcontractor.

Examples like Tsilingir’s have stirred a wider debate in Germany about jobs being outsourced into lower paid contracts that often have less generous overtime pay and fewer provisions against firing. Such agreements also bypass the protections employees have where they are represented by a works council, which has seats on the company’s supervisory board.

Labor Model

“We see a trend toward a two-class labor force” dividing permanent and contract jobs, said Karl Brenke, a labor-market expert from Berlin-based research institute DIW. “A growing number of contract jobs dissolves the model of employee participation, which secured the social peace between companies and employees, and is a pillar of the German economy.”

Nahles, whose Social Democratic Party is the junior partner in Chancellor Angela Merkel’s coalition government, has pledged to tighten rules regarding outsourced workers. Doing so is part of the agreement that brought the Social Democrats into the government.

“We will address contract-work relations next year,” Nahles said. “It’s difficult to gather reliable data,” which shows “transparency should be key.”

Purchasing Budgets

The Christian Social Union, the Bavarian sister party of Merkel’s CDU, is calling for putting off any changes for the time being to avoid adding an extra burden for industry as Europe’s largest economy flirts with recession.

“We need to question whether our coalition agreement, with regard to contract and temporary work relations, is really urgently needed now,” Gerda Hasselfeldt, caucus leader of the CSU parliamentary group, told reporters this month.

Precise numbers on contract work are not available because it’s paid for through purchasing budgets in the same way that metal supplies are bought or a production hall is built. Therefore, contract workers don’t appear in a company’s personnel statistics. The Federation of German Trade Unions estimates that such positions comprise 20 percent of the workforce in some companies.

“Contract work is often used to undermine pay agreements and working hours, as well as social-security standards,” said Reiner Hoffmann, the trade union federation’s chairman.

Retaining Flexibility

Gesamtmetall -- the employer organization for metal and electronic industries whose members include Daimler, Siemens AG, Bayerische Motoren Werke AG and ThyssenKrupp AG -- says contract work helps secure jobs in a sector of the economy that employs 3.7 million people. Germany shouldn’t throw out this flexibility because of a few bad eggs, the group says.

“It’s wrong to say that contract work per se means that the working conditions for the employees at the contracted firm are worse,” said Oliver Zander, Gesamtmetall’s chief. “There might be some black sheep, but there are very few. In light of the hundreds of thousands of contracts that are arranged every day, we don’t see any need for action.”

As for Tsilingir, he’s left Germany for a job in the Netherlands, where he says he’s happy -- and being paid.

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