Labor Costs

Wage Concessions for German Employers

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Chancellor Merkel hearing from both sides?
  • Why it matters

    Why it matters

    The Confederation of German Employers’ Associations (BDA) has serious reservations about the labor and business portions of the right-left government’s coalition agreement.

  • Facts


    • At the BDA’s conference in Berlin, the German chancellor promised to lower pension contributions.
    • Ms. Merkel rejected a proposed workplace anti-stress regulation feared by employers.
    • Sigmar Gabriel, the vice chancellor, criticized the reluctance of companies to invest.
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Ingo Kramer, president of the Confederation of German Employers’ Associations (BDA), used his speech at the group’s conference in Berlin this week to give a bit of a lecture.

“We can’t ignore what secures highly paid, competitive workplaces and that we will need more rather than less of these in the future,” Mr. Kramer said. “This has to be continually explained this to politicians.”

Mr. Kramer was referring to German employment contracts which companies want to use to bring skilled talent to Germany.

The digitalization of Germany’s industrial economy – the software upgrade of factory processes referred to in Germany as “Industry 4.0” – cannot take place without skilled, foreign technology experts, he warned.

But German labor unions are generally not eager to bring foreign laborers to Germany to compete with their members.

German business’ ability to offer competitive contracts to foreign workers was thrown into doubt after the election of a right-left federal governing coalition of the center-right Christian Democratic Union, its Bavarian sister party, the Christian Social Union, and the minority center-left Social Democrats.

In her reply, the German chancellor, Angela Merkel, appeared to be only half-listening to Mr. Kramer at the conference. Ms. Merkel said a binding political agreement among members of her ruling coalition only addressed the rights of works councils, which represent employees on German corporate boards, to get information about new contracts.

Ms. Merkel sought to assuage concerns that new coalition agreements on labor would inhibit employers from attracting skilled foreign workers.

“My promise to you is that we will not go beyond what we have agreed to in the coalition agreement,” Ms. Merkel said.

However, her ambiguous remarks also mean that everything in the agreement will happen. Like a new law that will require many German firms to increase the number of women on company boards. For decades, there have only been voluntary efforts, Ms. Merkel said, “but it has proceeded slowly.”

The chancellor rejected a proposal by the German labor minister, Andrea Nahles, for new rules that would require employers to address work-related psychological stress. “Not everything that surfaces as a problem must be cast in legal terms,” Ms. Merkel said.

Ms. Merkel was also skeptical about early retirement proposals for workers over 60 put forward by trade unions. But she did promise to give employers some relief in pension contributions. The goal is to keep non-wage labor costs under 40 percent of total compensation.

This would be “an important signal” given the economic challenges, Ms. Merkel said.

Mr. Gabriel said it would be worrying to meet Google chief executive Eric Schmidt at an event for startups because hardly any German entrepreneurs are willing to invest in these companies.

Mr. Kramer also requested some feedback on the “Germany-specific issue” of personnel recruitment: “No social system can be repaired later on, if we miss out on education opportunities now,” he said.

Ms. Merkel hopes to win over unions to a new employment and training accord. She stressed a pact must give real job prospects to the long-term unemployed. The nation spends €40 billion annually on social welfare benefits. If even half that money could be rededicated to investments, it would be a great help, she said.

Both Ms. Merkel and Sigmar Gabriel, the vice chancellor and minister for economic affairs, emphasized that borrowing money to pay for public projects will not happen.

The government has already relieved local authorities of responsibility for more than half of public infrastructure investments. Moreover, the government will make an effort to find private investors and improve investment conditions for entrepreneurs, Mr. Gabriel, a Social Democrat and Ms. Merkel’s likely challenger in 2017, promised.

But Mr. Gabriel also criticized employers. What really worried him, he said, was that companies’ rate of investment has been falling for years. He said it would be worrying to meet Google chief executive Eric Schmidt at an event for startups because hardly any German entrepreneurs are willing to invest in these companies in Germany.

Despite their differences on other areas, Mr. Kramer and Mr. Gabriel were united on one point: less government, more market.



Frank Specht reports on the labor market and trade unions for Handelsblatt in Berlin. To contact the author:

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