Ibm Drops A Bomb On Labor

Nestled in Stuttgart's hilly suburbs, IBM Deutschland's placid headquarters is an unlikely spot from which to launch a revolution. But that's exactly what Hans-Olaf Henkel, chief executive of IBM's $10 billion-a-year German subsidiary, is attempting.

At a boardroom breakfast on June 30, Henkel disclosed that IBM would pull 17,500 of its 24,500 workers out of the national labor contract with IG Metall, Germany's most powerful union. Demanding "performance and results"--and 5% annual productivity gains--Henkel plans to create four operating companies. Only one, the 7,000-employee manufacturing unit, will remain under contract. Says Henkel: "It's the first time someone has dared escape the stranglehold of the metalworkers."

That may be so. But many employers already are doing more than just complaining about high German wages and restrictive work rules. Across the country, the comfortable and costly labor-management consensus in place for decades is starting to crack in the face of recession, looming European free trade, and global competition.

Earlier this year, public workers backed off on demands for double-digit pay hikes after Chancellor Helmut Kohl stood his ground during 11 days of strikes. And big manufacturers are stepping up offshore investments in search of cheap labor. BMW is building its next plant in South Carolina. Daimler-Benz and Volkswagen are moving offshore. And even IBM is selling Europeans a line of Asian-made PCs.

What's bothering employers as much as Germany's $28-per-hour manufacturing labor costs are work rules that sharply limit their flexibility. IBM now pays workers more than union scale and is likely to continue doing so. But with the company forced to spread 90% of its pay hikes across its entire work force, Henkel complains he hasn't been able to reward productive workers. He and other employers also rail at deals in several industries to shrink the work week to 35 hours by 1995, from 37 now. "IBM's move worries us," concedes Hermann Zoller of the IG Medien publishing and communications union.

Labor could still try to blunt IBM's move. Henkel is pulling IBM out of an employers' federation that negotiates wages industrywide. But under German law, he still is obliged to deal with the company's workers' council. That requirement has enabled IG Metall to force 1,500 other breakaway employers into deals similar to ones reached by bigger companies. But there's no guarantee that the metalworkers will succeed against the powerful IBM.

STERN WARNING. Indeed, even before Henkel's bombshell, pattern bargaining was fraying. In eastern Germany, employers are fighting to impose deals reflecting the region's lower productivity. And publishing giant Gruner & Jahr, using a variant of IBM's tactic, has pulled a plant near Hamburg out of the Print Industry Employers' Federation so it could print Stern magazine on weekends. That practice had been banned under a pact on working conditions.

With German manufacturers opening plants everywhere from Czechoslovakia to South Carolina to slash production costs, it will be harder and harder to justify such restrictions. Finally, the global economy is catching up with Germany's well-paid unions.

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