Germany's Mighty Unions Are Being Forced To Bend

For years, I. G. Metall, Germany's largest labor union, has charged ahead, capturing some of the most generous labor pacts in the industrialized world. Its members boast the shortest-ever workweek while banking fat paychecks. Now, with German industry in deep recession, I. G. Metall reps in well-tailored suits are struggling to defend a 26% wage hike in eastern Germany, part of a 1991 deal to bring wages to Western levels by 1994.

But the wage battle has taken a curious twist. While east Germans are keen for higher pay, more and more of them are starting to fear that such a colossal increase will bankrupt much of their industry, throwing thousands out of work. "I don't understand the union. Economically, we can't survive a 26% wage increase," complains Klaus Axmann, chairman of the workers' council at Montagewerk Leipzig, an engineering firm. Bets are that I. G. Metall will not get much more than the employers' offer of 9%--just enough to cover inflation in eastern Germany.

The creeping insurrection in east Germany is just one of many cracks suddenly appearing in Germany's powerful labor movement. Recession, global competition, and the costs of reunification are forcing German workers to accept painful concessions. Spurring the change is fierce competition from Asia and Eastern Europe. Many German companies find they can't compete because they're hamstrung by the world's highest labor costs (table) and laws that limit shifts and forbid weekend work.

That message is ringing alarms in Bonn. A worried Chancellor Helmut Kohl is already making competitiveness a key goal to help fix the economy before the 1994 elections. He's lobbying hard for a solidarity pact that demands wage moderation from the unions in exchange for limited subsidies for struggling east German industry.

WRENCHING. It's not the first setback for unions in postwar Germany. But it heralds the biggest threat so far. German industry is facing a wrenching restructuring that could cut hundreds of thousands of jobs. One example is Daimler Benz, which plans layoffs, a radical corporate overhaul, and moving some production to sites outside of Germany. In turn, union influence, notably that of I. G. Metall, will wane. "Their hands are tied, just like the British trade unions in the 1970s," says Rainer Veit, senior economist at Deutsche Bank in Frankfurt.

Labor's maneuvering room is getting smaller and smaller. In January, the powerful public workers' trade union, OTV, agreed to a 3% wage hike--down from an initial demand of 5.5% and nearly half the previous year's settlement. In Baden-Wurttemberg, I. G. Metall has offered to give back nearly half of a 3% pay increase to neutralize a one-hour cut in the workweek, to 36 hours. And state-owned Lufthansa set a surprising precedent last September when workers overrode union objections and accepted one-time pay cuts to avoid job losses.

In eastern Germany, many companies are refusing to join employers' associations--which would bind them to broad wage agreements--leaving them free to cut their own deals with workers. In Saxony, for example, 50 out of 480 companies have left the association of metal- and electrical-industry employers. And last June, IBM yanked 17,500 of its 24,500 workers out of a national labor contract with I. G. Metall by splitting up its German company into four separate subsidiaries.

Big German unions face another challenge from the East. The employer's association is lobbying for escape clauses that allow sick companies to bypass wage agreements and negotiate individual contracts with their workers. Already, management and labor unions are looking the other way as dozens of east German companies pay less than the contract wage. "If the union agrees to escape clauses in a contract, it will be a huge turning point--a systemic change," says Claus Schnabel, senior economist at the Institute for the German Economy in Cologne.

And while their rhetoric remains blustery, union leaders admit privately that they must adapt to far-reaching structural changes in German industry that include big job cuts. "We have to think again about the welfare state that we have built, which is starting to looklike an exception in global markets," says Wolfgang Schroeder, a strategic adviser to I. G. Metall. If their vision is that clear, Germany's unions may well retain their powerful voice into the next century.

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