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Are The Easy Times Gone For Good?


International Business: GERMANY

ARE THE EASY TIMES GONE FOR GOOD?

Germany has a giant jobs crisis that threatens its labor peace

On a foggy morning in January, five employees taking a coffee break at a railcar factory in Siegen, Germany, talk gloomily about work. For the past three years, they've watched hundreds of colleagues collect their last paychecks as their employer, ABB Henschel, started making railcars at low-cost sites in Poland and the Czech Republic. They know something is wrong with a Germany that now exports its jobs instead of creating more at home. "The whole system has to be fixed for our children and grandchildren," laments Werner Schulz, 54, an accountant. Agrees Ulrich Kromback, a 45-year-old welder in blue coveralls: "It's more urgent than ever."

From the shop floor to the Chancellor's office, the realization is finally sinking in: Germany has a giant job crisis. Unions and employers tried over the past few years to ignore this fact and instead kept ratcheting up wages and benefits until German labor costs became the highest in the world. But now, German unemployment, at 10%, is at a postwar high and shows no signs of declining. The economy seems incapable of creating new jobs, and labor negotiators and employers are desperately trying to figure out a course of action. "We've talked enough--now we've got to do something," admits Julius Louven, a labor expert in the Bundestag. That "something" could lead to a dramatic revision of Germany's prized social contract.

GOING ABROAD. On Jan. 23, Chancellor Helmut Kohl and his advisers will sit down with union and employer representatives to discuss the best way to revive business activity and get Germans working again. All three groups are under mounting pressure to produce. Unions want to reverse their dwindling membership rolls, down 20% in four years. Employers are still red-faced at being duped into a very expensive deal in 1995 and would dearly like to cut wages and benefits. And Kohl, mindful of his narrow majority, wants to use the jobs issue to boost his party's image ahead of local elections in March.

Already, Klaus Zwickel, chief of the powerful metalworkers union IG Metall, has upstaged everyone else. He is proposing an Alliance for Jobs, in which employers promise to create 330,000 jobs starting this year, unions hold back their wage demands for 1997, and Bonn forgoes planned cuts in long-term unemployment pay.

The employers are glad that Zwickel finally recognizes the need for wage restraint if German jobs are not to disappear en masse. But the call for a guaranteed boost in employment alarms players in the financial markets. "[Zwickel] is calling for central planning," scoffs Thomas Mayer, chief economist at Goldman, Sachs & Co. in Frankfurt. "Germany needs market-based solutions to reflect the competitive environment."

Countering Zwickel's vision, business wants flexibility in the labor market, tax breaks, spending cuts, and deregulation in the economy overall. In mid-January, in a clear retort to the Zwickel manifesto, Hans-Olaf Henkel, head of the Federation of German Industry, published an eight-point plan sounding all these themes. Among other things, Henkel calls for a cut in social levies, to 37% of income from 41%; specific tax breaks to encourage employment; and a greater role in wage negotiations for local workers, who presumably know their employers better than national unions. Henkel argues that this way, 2 million jobs could be created by 2000.

Undaunted, other unions are talking about job-creation schemes and are strongly hinting that strikes could break out unless Zwickel's plan becomes the blueprint for generating jobs in Germany. Yet the employers, for now, are not ready to compromise. Nothing is stopping them from investing abroad, where labor is cheaper and skilled workers are easy to find. German companies such as Siemens and BMW continue investing in locations as diverse as Poland, Malaysia, and North Carolina. Bayer, which is rapidly expanding in China and southeast Asia, cut its German payroll by over 4,000 in 1995. Says CEO Manfred Schneider: "We cannot create any new jobs in Germany."

MITTELSTAND ANGST. Employers also feel they have been generous enough--too generous--with German labor. In early 1995, when it looked as if the economy would grow by 3%, IG Metall secured a deal that, including shorter hours and lower-than-expected inflation, pushed wage costs up by more than 10% as of December, 1995. In eastern Germany, the 1995 pact--coupled with the plan to bring wages up to levels in western Germany--boosted pay costs by more than 20%, a sum midsize employers cannot afford.

Those high-cost deals are driving many members of Germany's vital midsize corporate sector--the Mittelstand--to seek their own solutions with labor. Berthold Dentler is president of OWP Brillen, a maker of high-fashion eyeglasses in Passau with $25 million in annual sales. The recent wage deals cut by IG Metall and Gesamtmetall, the employers group, boosted expenses so fast that his company sank into the red in 1995. Disgusted, he quit Gesamtmetall in September and offered his employees his own pact: a deal involving a longer workweek, profit-sharing, and, Dentler hopes, a chance to save jobs.

Dentler's employees will vote on his proposal at the end of the month. Whatever their answer, Dentler feels the easy times are gone for good. "Germany needs to see things the way they are, not as we wish them to be," he says. This is the year when Germans may really start grappling with their country's new realities.By Karen Lowry Miller in Passau, GermanyReturn to top


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