By Asking for Less, These Workers Get More

A flexible labor force attracts investment in eastern Germany

The news looks grim for companies in Germany: IG Metall, the mightiest union in the land, is preparing to strike on May 6 for higher wages. An open-ended strike against employers such as DaimlerChrysler and Porsche could hammer production just as the economy works to regain momentum.

But IG Metall has another side to it, a side best known to bosses and workers in old communist East Germany. Last year, for example, IG Metall wanted to persuade BMW to build a new plant in Leipzig rather than the Czech Republic. So it signed off on a plan that lets BMW adjust working hours to demand. "IG Metall has definitely been flexible in the east. No employer can deny that," says Sieglinde Merbitz, chief representative of the union's Leipzig chapter.

That's a far cry from what IG Metall envisioned when Germany reunited in 1990. Back then, it and other labor unions demanded that workers in the east be paid close to what their counterparts made in the west. Wage levels promptly rose way beyond what enterprises in the east could afford. Overstaffed businesses were forced to lay off even more workers than they would have otherwise. That explains why unemployment in the east was 18.8% in March, vs. 8% in the west.

Prodded by this harsh economic reality, workers in eastern Germany have quietly become some of the most adaptable in Europe. They have kept their wage demands in check and have been willing to work nights and weekends without demanding exorbitant premiums. The changes are helping the region attract more investment and jobs--and may help push the rest of Germany into reforming. "One of the reasons to come here is the people," says Hans Deppe, general manager of a Dresden microprocessor plant operated by Advanced Micro Devices Inc. "They are hungry to work."

Sunnyvale (Calif.)-based AMD was even able to import its U.S. production schedule to the East German city. Working 12-hour shifts for up to four days in a row, AMD's workers in Dresden keep the plant going 24 hours a day, year-round. That kind of schedule is almost unheard of in western Germany. AMD, which was lured to the east by generous government subsidies, will boost its total investment in the Dresden fab to $2.5 billion by next year.

AMD isn't the only proof that labor is more flexible on the other side of the old Iron Curtain. Over the course of a year, the average laborer in the east works nearly a month longer than his western counterpart. Hourly labor costs now average around $14 in manufacturing, vs. about $22 in the west. Although productivity is lower, economists argue that has more to do with the infrastructure than the workforce.

A key difference between east and west is the way companies and workers negotiate contracts. In the west, big unions and employer associations hammer out blanket agreements that apply to entire industries and vary little from region to region. That means a DaimlerChrysler factory near Stuttgart operates under pretty much the same contract as a company that makes brake disks in Hessen. The system has promoted labor peace, keeping work hours lost to strikes well below the average in the U.S., Italy, and France. But blanket agreements make scant accommodations for a company's peculiar problems.

That's why more than half of East German companies are working out their own agreements directly with nonunion employees. Others, like Jena-based optical equipment maker Jenoptik, are choosing a middle path: They negotiate contracts with unions at the local level. Despite some drawbacks, the local agreements almost always result in a better deal for companies.

It's difficult to quantify the macroeconomic benefits of East German flexibility, especially amid rising unemployment nationwide. But the signs are encouraging. Industrial production rose 4.5% in the east last year, compared with 0.3% in the west. Economists suspect worker flexibility is a factor. "People are starting to move to East Germany because you can do more with the labor force there," says Michael C. Burda, an economics professor at Humboldt University in Berlin. The east may yet teach the west a thing or two about capitalism.

By Jack Ewing in Frankfurt

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