Photographer: Alex Kraus/Bloomberg

Money Isn’t Everything for German Workers

Updated on
  • Demand to subsidize shorter work weeks has employers fretting
  • ECB is looking to German wages to underpin inflation targets

With Germany’s economy humming along and skilled staff hard to come by, workers at the likes of BMW AG, Siemens AG and Robert Bosch GmbH are gunning not only for a hefty wage increase but also for time and cash to help take care of their kids and grandparents. 

Subsidies to encourage employees to reduce working hours are at the crux of contentious contract talks between German manufacturers and IG Metall, which represents 3.9 million workers. Ahead of negotiations on Thursday in the state of Baden-Wuerttemberg -- home to Porsche and Mercedes-Benz -- the country’s biggest union has rallied about 160,000 people across Germany to halt work in recent days for about an hour in so-called warning strikes. It’s threatened further escalation if the talks don’t go well. 

There’s a lot at stake. The European Central Bank is watching closely to see if record-low unemployment in the euro area’s biggest economy can finally generate sizable wage gains and boost inflation, which would give policy makers the firepower to unwind stimulus efforts for the currency bloc as a whole. 

In a sign of the negotiations’ relevance to the wider economy, IG Metall representatives have met with German central bank officials to discuss wage developments. A Bundesbank spokeswoman confirmed the meeting to Bloomberg, adding that it included other unions and covered a broad array of economic topics. IG Metall declined to comment.

Aside from potential monetary fallout, employers are hoping a deal doesn’t curtail competitiveness at a time when they’re already bogged down with the uncertainty stemming from Germany’s political standoff over forming a government.

If the union gets its way, “it would mark another disadvantage for Germany, and we’d have to consider more closely where we invest,” said Stefan Brandl, chief executive officer of EBM-Papst Group, a manufacturer of electric motors and high-tech fans in southwest Germany, which also operates facilities in Hungary, China and the U.S. The company was hit with a warning strike by IG Metall on Tuesday. “We hope the union keeps business needs in mind and doesn’t shoot itself in the foot.”

Labor Bottleneck

German companies are increasingly having to hold back production due to lack of workers

Source: European Commission survey

Germany’s unions and employers tend to have cooperative relations. Labor representatives are required on the boards of most sizable companies and participate in strategy discussions. IG Metall contracts, which cover most manufacturers, last at least 12 months, but the timeframe is part of the negotiating process.

What Our Economists Say...

“If not in wages, the stronger bargaining power granted to employees by an ever tighter labor market could show up in perks, via demands for greater working time flexibility or better childcare. These come at a cost to companies, but are the kind of inflationary pressure the ECB can’t put its fingers on.”

-- Maxime Sbaihi, Bloomberg Economics

Talks are likely to drag on for weeks as the two sides remain far apart. IG Metall is seeking a 6 percent pay rise, compared with an offer of 2 percent from employers. (Economists says an increase close to 3 percent would be good news for the ECB’s inflation target.) The deeper rift stems from the union’s demand to subsidize lost wages for staff that voluntarily reduce their workweek to 28 hours from 35 to care for loved ones. The payments would be 200 euros ($240) a month or 750 euros a year, depending on the type of work. 

“Every cut in working hours only serves to exacerbate the already intense labor shortage,” said Stephan Stracke, a lawmaker in Chancellor Angela Merkel’s conservative bloc. “The economy is buzzing, the order books are full,” so moving to a 28-hour work week is “not realistic.”

Employer group Gesamtmetall has called the union’s demand potentially illegal because it would discriminate against people already working part-time. Both unions and employers estimate that as much as 5 percent of IG Metall members could take advantage of the program.

“That would hurt us very, very badly,” said EBM-Papst’s Brandl. Because of a lack of skilled workers, “we can’t use all the capacity we have available.”

The union, on the other hand, argues that the measure is needed to woo more people, especially women, to engineering and metalworking trades. IG Metall has made work-life balance a central pillar of its platform, including a campaign called “My Life, My Time.” The part-time work subsidy would apply for two years and include the right for workers to return to full-time employment. 

Less Work, Please

One in three workers surveyed by Germany's largest union want shorter working hours

Source: IG Metall Employee Survey 2017

Note: Survey covered 681,241 respondents in industry, industrial services, and handiwork sectors

“This industry needs to improve its appeal for skilled employees with attractive, flexible work-time options,” IG Metall chairman Joerg Hofmann told reporters in Frankfurt. “Both aspects -- the salary increase and working-time options -- are by now deeply rooted within the workforce.”

On the European level, the ECB said in a recent report that a meeting it held with several large companies revealed that workers aren’t necessarily clamoring for pay increases. The younger generation is more focused on quality of life, while older employees prefer job security to higher pay. 

To push its agenda, IG Metall stepped up pressure on employers with more temporary walkouts of thousands of workers on Wednesday, including a torchlight rally during the night shift at car-parts manufacturer KS Kolbenschmidt in Neckarsulm.

“I can’t imagine them completely dropping their demands for flexibility -- that has been too prominent a part of this negotiation,” said Carsten Brzeski, an economist at ING-DiBa AG in Frankfurt. “But they might be willing to compromise.”

— With assistance by Birgit Jennen, and Jana Randow

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