CHAPTER 8 Employment Relations in Germany Berndt K. Keller and Anja Kirsch

1. CHAPTER 8 Employment Relations in Germany Berndt K. Keller and Anja Kirsch

2. Lecture outline • Key themes • Historical background • The parties: • Employers and their associations • Unions • The state • Co-determination • Collective bargaining • Industrial disputes • Current and future issues • Conclusions

3. Key themes • Germany is seen as the exemplar of a highly coordinated and regulated market economy. • In the German ER system, employee interests are represented in a dual system: co-determination at the workplace and company levels as well as collective bargaining at the industry level. • A minority of employees enjoy this representation, however, and this ‘duality’ is slowly eroding. • The number of industrial disputes is relatively low due to the centralisation of the system, a high degree of cooperation and trust, and alternative dispute resolution mechanisms. • The gradual shift towards the Anglo-American Liberal Market Economy model is evidenced by the decentralisation of collective bargaining, more flexible labour practices, and a growing emphasis on share-holder interests. However, a complete convergence is unlikely.

4. Background • West Germany experienced very strong economic performance after World War II. • The high-productivity, high-value-added, high-wage, high-skill model lasted to the mid-1970s. • The collapse of the Bretton Woods system and the oil crises in the 1970s led to economic decline in the West German economy. • There was some recovery in the 1980s, but problems arose with the integration of the socialist East German economy in 1990, and since the mid-1990s, economic growth has been low and unemployment high. • The political system has been continuous and stable. • Germany is a federal system but employment relations policy is uniform across states (in contrast to Canada or the US). • Germany has a comprehensive welfare system focused on occupational status and the insurance principle.

5. Employers and their associations • There are three types of interest organisations in Germany: • Business or trade associations represent general business and product market interests, lobbying: peak federation BDI • Special employer associations engage in social policy, employment relations, collective bargaining: peak federation BDA • Chambers of industry and commerce • Employers’ associations which are responsible for collective bargaining represent firms according to industries as well as regions. • Membership density is estimated to be high but has declined in recent decades. • All member companies must abide by the collective agreements that their employer association negotiates with a union, a system which has caused dissatisfaction amongst SMEs. • In an attempt to counter membership loss, some associations allow companies to be members without being bound to collective agreements.

6. Unions • Unions were established after WWII according to the principles of industrial unionism and unitary unionism. • Industry unions engage in collective bargaining whilst the peak federation (DGB) is responsible for political activities. • The organisational structure of unions was stable until the mid-1990s when shrinking membership, decreasing financial resources and structural changes led to a flurry of merger activity. Now there are eight unions. • Unions have been losing members since the 1990s and density was at all-time low of 20% in the early 2000s. • Losses contributed to a decline in union bargaining power and the rise of a major non-union sector. • Union membership is concentrated amongst skilled, male, full-time workers in the manufacturing and public sectors. • In order to strengthen their position, unions must organise groups who are under-represented in membership, e.g. women, young people, and highly skilled, white-collar and foreign workers.

7. The state 1 • German employment relations are characterised by a high degree of juridification • The Works Constitution Act regulates how an employer and a works council interact at the plant level • Co-Determination Acts regulate how an employer and employee representatives interact on the company-level supervisory board • The Act on Collective Agreements regulates collective bargaining • The constitution guarantees the right to freedom of association • An independent and specialised system of labour courts operates at local, regional and national levels. • The social partners engage in collective bargaining without active state interference (principle of ‘free collective bargaining’).

8. The state 2 • Employers frequently extend collective agreements to all employees so as to avoid providing incentives to join a union. • Industrial action is prohibited during the term of an agreement. • The social partners have a high degree of freedom to determine their own structures and dealings e.g. mediation agreements are formed from voluntary negotiations between social partners without state intervention. • The state has played an active role through corporatist arrangements, peaking in late 1960s and 1970s.

9. ER processes: co-determination 1 • Co-determination is the principal feature of employment relations in Germany, based on the idea of industrial democracy and cooperation. Co-determination at the workplace level • Works councils have a set of rights on 3 sets of issues: • Economic and financial affairs • Staff matters, and • Social issues • Rights range from information, through consultation to binding co-determination and veto rights. These rights vary depending on the issue. • The Works Constitution Act does not apply to very small enterprises or public sector employees and only partially covers NFP/NGO type organisations.

10. ER processes: co-determination 2 Co-determination at the workplace level continued • Works agreements which are negotiated between employers and works councils on the basis of these rights cannot contradict industry-wide collective agreements. • Works councils are independent and separate from the union and are supposed to be detached from wages and income distribution matters, however, there is much overlap between the activities and membership of unions and works councils. • In many enterprises, there are no works councils, as their election must be initiated by employees (for example, one half of all private sector employees are not covered by works councils). Thus there is a growing ‘representation gap’.

11. ER processes: co-determination 3 Co-determination at the company level • German companies have a two-tier board structure – supervisory and management boards. • A percentage of members of the supervisory board (from one-third to almost one-half, depending on company size) are employee representatives (often they are also works councillors or union officials). • Employee representatives are usually involved in the appointment of the labour director to the management board • There are three Acts on co-determination at the company level: the Co-determination Actfor the coal and steel industries, the Works Constitution Act (now the One-Third Participation Act) and the Co-Determination Act. • The two channels of co-determination through works councils and employee reps on supervisory boards have contributed to the development of sophisticated cooperation at the company and shop-floor levels. • Thus, employment relations are characterised by the notion of mutual recognition within a ‘social partnership’, however, many employees work in companies where they have no representation.

12. ER processes: collective bargaining 1 • There are three kinds of collective agreements: • Wage agreements fix the level of wages and their periodic increases • Framework agreements specify wage payment systems • Umbrella agreements regulate all other conditions of employment (e.g. working time, overtime, holidays) • In the majority of industries, collective bargaining takes place at regional and industry levels, for example, between the regional branches of an employer association and the union associated with that industry • This structure has led to pattern bargaining: pilot agreements in the metal and electrical industry are transferred to other regions (within the same industry) and other sectors (i.e. different industries)

13. ER processes: collective bargaining 2 • Moderate level of centralisation with highly coordinated collective bargaining. • Narrow wage differentials, although recently there has been a widening. • Some companies negotiate enterprise agreements with unions outside of the industry-wide agreement. • The coverage rate of industry-level agreements has decreased to a ‘crisis point’: less than 60% of employees in western Germany and 40% in the east are covered by industry agreements. • Some companies are also ‘tacitly escaping’ collective agreements, i.e. they do not comply with certain provisions of the agreement despite being legally bound to do so.

14. Industrial disputes • Industrial disputes are usually industry-wide within a certain region and are coordinated centrally by unions and employer associations. • Strikes as well as lockouts are legal. • Unions take ballots before a strike, and the ballots are prescribed by union rules, not legislation as in some other countries. • The number of industrial disputes is low compared with other countries due to centralisation of the collective bargaining system, the high degree of cooperation and trust that is generated through co-determination, and the existence of alternative dispute resolution mechanisms (conciliation, labour courts) for disputes of rights. • Only conflicts about the terms and conditions of new collective agreements can be the subject of legally sanctioned industrial action.

15. Current and future issues: public sector employment • The state is Germany’s largest employer and employment relations in the public sector are characterised by the distinction between public employees and civil servants with terms and conditions set differently. • Collective bargaining used to be highly centralised for all employers but decentralisation has occurred recently and is likely to continue • Public sector employment has been decreasing since the mid-1990s. • Privatisation of national utilities has had some impact on employment practices.

16. Current and future issues: minimum wages • There is no statutory national minimum wage in Germany. Historically, extensive collective bargaining coverage provided the safety net. • In recent years, bargaining coverage has declined and unions in some industries are struggling to secure adequate wages. • This has led to the emergence of the ‘working poor’ and associated debates about the introduction of a binding minimum wage. • Governments have amended legislation to make it easier to declare industry wage agreements as binding for all employers. • In the future, it is likely that the social partners will set the minimum wage at industry level.

17. Current and future issues: increasing flexibility 1 • Since the early 1980s, employers and their associations have demanded more ‘flexibility’. • Flexibility can mean temporal flexibility, flexibility in wages and salaries, functional flexibility and flexibility in forms of employment. • Temporal flexibility has been a key collective bargaining concern, with unions winning reduced working hours in 1984 and employers resisting further reductions. In practice, working hours are flexible and individual working-time accounts have been introduced for the majority of employees. • Effective working times are longer now, whilst part-time work has increased to more than 25% of the labour force, leading to a polarisation of working time. • Wage and salary flexibility is also contentious. Labour’s share of the national income is at historical lows and income inequality between low- and high-paid workers has increased.

18. Current and future issues: increasing flexibility 2 • Functional flexibility is not a central concern in collective bargaining because the dual system of vocational training (apprenticeships involving training at vocational schools and in companies) provides young people with a broad range of skills. • This coordinated training system has contributed to Germany’s ‘high skill/high wage’ model and competitive advantage over other countries. • Flexibility in forms of employment has increased, as seen in increasing atypical employment (part-time, petty employment, fixed term contracts and temporary work). • The growth of non-standard employment has increased tendencies of segmentation of the labour market into a core unionised and protected segment and a peripheral unorganised and unprotected segment. • The consequences of these changes for employment relations practices are far-reaching.

19. Current and future issues: decentralisation of collective bargaining • Germany, like other countries, has moved towards decentralised collective bargaining, however the processes have been qualitatively different. • Since the 1980s, ‘opening clauses’ have become the major instrument of reform, allowing companies to vary or deviate from certain provisions in the industry-wide collective agreement. • Variations must be negotiated between employers and works councils at the company level and laid down in a works agreement. • Works agreements are of growing importance as a result. • Final decisions about substantive issues have gradually shifted to managers and works councils with a commensurate decline in the power of unions and employer associations. • Thus the formal structures of industry-wide collective bargaining have remained intact but its outcomes and functions have changed significantly.

20. Conclusions • The traditional highly integrated, highly regulated, ‘dual system’ is eroding. • Since the early 1990s, changes to the key institutions and procedural rules of the German system have led to greater variation in employment relations practices and an increasing resemblance to the Anglo-American model, though complete convergence is unlikely. • Decentralisation – the balance of power between unions and employer associations, and employers and works councils has shifted as the scope of negotiations at the enterprise level has broadened.