Wage Talk

Outmaneuvered by Bundesbank on Wages, Union Chief Says Labor Demands Robust

Kampagne für Mindestlohn ohne Ausnahme
Reiner Hoffmann, the head of the German Federation of Unions, campaigns for a minimum wage with no exceptions.
  • Why it matters

    Why it matters

    In an usual step, the Bundesbank is encouraging unions to make aggressive wage demands to dampen deflation, A union leader, Reiner Hoffmann, said members don’t need the central bank to tell them what to do.

  • Facts

    Facts

    • Collective bargaining rules govern wage talks in many industries in Germany, and it is up to the unions and employers to reach a deal
    • Workers pay a nominal 42 percent maximum tax rate, while investment income is taxed at a 25 percent rate. This is unfair, Hoffmann said.
    • Unions have been fighting for a nationwide minimum wage of €8.50, without the student and other exceptions in the current law.
  • Audio

    Audio

  • Pdf

DGB Chairman Reiner Hoffmann is very familiar with Handelsblatt. As a student, he worked as an intern in the newspaper publisher’s sales department, which he describes as “mindless work, but well-paid.”

Mr. Hoffmann sat down for a two-hour conversation with us at DGB headquarters in Berlin before heading off for an important appointment: a haircut in the city’s Prenzlauer Berg neighborhood. He then went on to debate the minimum wage with the hairdresser on “Maybrit Illner,” a talk show on Germany’s ZDF television network.

Handelsblatt: Mr. Hoffmann, have you thanked the Bundesbank in Frankfurt yet?

Mr. Hoffmann: Why should I? There is no reason for that.

The central bankers are advising the unions to abandon their restraint in the next bargaining round. It gives you a new line of attack.

Management and labor don’t need any guidance on wage policy. After all, we still have free collective bargaining.

The monetary watchdogs are essentially accusing you of being too docile.

Nonsense! The supposed restraint in Germany when it comes to wage policy is really a fiction. Just look at our agreements in the metal and chemical industries since the turn of the millennium! In these sectors, where Germany is a very strong competitor, we have always taken advantage of our position to make sure all workers benefit. There have been a few aberrations but overall, we have done very well in the last decade, when you take price increases and productivity into account. It’s a different story in a number of service professions, which employ large numbers of part-time workers or staff with short-term contracts. There is less organization, which weakens our position in bargaining rounds.

“Management and labor don’t need any guidance on wage policy. After all, we still have free collective bargaining.”

Reiner Hoffmann, Chairman, German Federation of Unions

The Bundesbank believes that there is more potential. It sees a margin of between 3 and 3.5 percent.

That is remarkable, and is a new way of thinking from them. Till now, the Bundesbank has suffered from macroeconomic blindness in one eye. It has always felt that wage agreements were too high, but never too low. Still, tariff autonomy is tariff autonomy.

3.5 percent – is that the new number?

Well, it’s like this: Since the introduction of the euro, there have been concerns that the elimination of exchange rates will increase pressure on wage costs. Luckily this hasn’t happened yet. If we want to prevent a downward spiral in wages, we have to use productivity and prices as our benchmark. That’s nothing new.

The Bundesbank advises using a “target inflation” figure of about two percent. It argues that higher wages would lead to price increases and curb fears of inflation.

The truth is that constantly falling interest rates, is almost finishing off monetary policy in Europe. That´s why wage policy is now being discussed.

Not from the standpoint of employers, who are worried about remaining competitive.

And that’s their job. But competitiveness isn’t even at risk. Wage costs are completely manageable, compared to other costs. Energy costs play a much more important role, or costs associated with dealing with our crumbling infrastructure.

So you can promise the unions that you’ll be very aggressive in the next bargaining round?

One representative is demanding a 5.5-percent increase for the upcoming bargaining round, the next one wants 6 and the third one wants 8 percent. That’s when they say that the weight of expectation on our colleagues is extremely high. But with these kinds of demands, I have to wonder whether our colleagues will actually step outside the factory gates if push comes to shove.

What do you mean by that?

These things are complicated. Things are going very well for one company while another is seeing a sharp drop in sales. But unions need to make uniform demands.

What role does top-down redistribution, as envisioned by trade union economist Viktor Agartz, play in these negotiations?

This is ultimately what the Bundesbank proposal amounts to, even if it isn’t being put that clearly. The fact is that there is a growing gap between income from investments and earned income.

Are you suddenly a fan of the Bundesbank, after all?

Our primary goal is to secure a real increase in income. When you look at redistribution, you have to wonder what role wage policy can play at all. It gives us no influence whatsoever on changes in fees, charges, taxes and social insurance contributions. Wage policy alone isn’t enough to tackle redistribution.

Are you at odds with fiscal policy?

It is strange that the government is supporting the the minimum wage at our insistence, but workers may still have less money in the end, because their salary has been consumed by progressive taxation. We will continue to conduct this debate. And besides, how do I explain to my people that they, as workers, pay 42 percent in taxes, while someone with €3 million ($4 million) in the bank only pays 25 percent? Someone who supports himself by working shouldn’t be taxed more heavily than someone who lets his money work for him.

The topic at the DGB convention in May was “good work.” How do you intend to strike a more harmonious balance between work and life?

Anyone who wants to support multi-faceted workers, with several interests and responsibilities, has to consider working hours through the lens of employment history and structure them in a flexible way. Unions have long been cautious in this. It’s far more difficult to structure this flexibility than to demand a €8.50 minimum wage for all.

In this flexible model, are people allowed to work to the age of 68 or even 70?

We wouldn’t pose the question like that. Half of those over 60 are no longer working today, even though European Union countries once agreed to increase the labor force participation rate to 70 percent by 2010. We still do far too little to ensure that people can remain healthy longer during their working lives. And companies often see the further training of people over 55 as a cost instead of an investment.

You want to give shop councils a stronger voice in the use of contract workers or the issuance of contracts for services. It’s part of your offensive to increase worker participation in management.

The offensive goes far beyond that. We want co-determination to have a much stronger impact on social policy in this country. Shop councils help ensure that collective bargaining agreements and regulations on working hours and occupational health are observed.

Would you agree with the statement that you, as head of the DGB, are simultaneously the most powerful and least powerful labor representative?

The DGB is only as powerful as its eight members. Conversely, the individual unions are stronger if a strong DGB represents them.

You appear very affable. Can you really dish it out, too?

During my trade union work in Brussels, I learned that patience is important. I used to be much more impatient. But don’t worry, I can engage in any future debate with employers, even when our positions are fundamentally different. There can be no harmonious discussion with someone who believes he has no need for collective bargaining agreements.

Mr. Hoffmann, thank you for this interview.

You can find a more extensive version of the interview at “Handelsblatt Live.”

Hans-Jürgen Jakobs, Frank Specht and Thomas Sigmund conducted the interview.

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