PAY DEBATE Reasonably Demanding the Unreasonable

One of Germany's largest unions, IG Metall, is asking for a 5.5 percent increase in compensation for millions of the nation's blue-collar workers. But companies could be hurt just when business is falling.
Loud calls for more money.

IG Metall union head Detlef Wetzel presented himself this week as Germany’s chief economist. “The pivot point for economic growth,” he advised, “is private consumption.” And so if 3.7 million workers in the metal and electrical industry make significantly more money in 2015, that would be the best program for stimulating growth.

Significantly more money means “up to 5.5 percent” – the pay increase that Mr. Wetzel, the leader of Germany’s largest union, recommended on Tuesday. If there is no opposition in the seven national districts of IG-Metall, the wage demand will be formally adopted on November 27. Negotiations with companies will begin in January.

Mr. Wetzel admitted that Germany’s economy is not doing as well as at the beginning of the year. “But there is no reason to paint gloomy pictures of economic decline,” he said. In spite of recently reduced growth forecasts, he continues to see a stable upward trend.

Moreover, the head of IG Metall in Baden-Württemberg, Roman Zitzelsberger, points to corporate profits, which have climbed “to their second-highest level in history.” For the current year, the Ifo Institute for Economic Research still expects a net profit margin of 3.6 percent, after 4.1 percent last year.

With an unfavorable wage settlement, we would undermine positive growth expectations. Wilfried Kurtzke,, responsible for social policy at IG Metall

But the metal and electrical industry is not made up only of high-flying carmakers with their 820,000 employees, some of whom are demanding wage hikes up to 6 percent. While Daimler and VW continue to enjoy lush profits, the employers’ association Gesamtmetall warns that 12 percent of member companies are faced with going in the red this year.

“We have firms that for now are basking in sunshine,” said the head of metal-industry employers in North Rhine-Westphalia, Arndt Kirchhoff. “But others aren’t earning enough money to reinvest, and that is the danger.” The union’s demands, he said, are “irreconcilable with economic developments.”

For the current year, wage settlements have averaged around 3 percent. In their last round of negotiations, the two parties in the metal industry agreed on a raise in two stages, totaling 5.6 percent over 20 months.

Figures from the first half of 2014 show how unequally the sectors of the metal and electrical industry are developing. Production in the automotive industry increased by 7.5 percent compared to the previous year. But the metal and electrical industry as a whole grew less than half that, 3.4 percent. Bringing up the rear is mechanical engineering, the domain of many mid-sized companies, with only 0.1 percent growth.


Metal and electrical industry


“The union seems to not consider reduced growth forecasts and very different situations facing individual sectors and companies,” said Stefan Wolf, head of Südwestmetall, the industry employers’ association in Baden-Württemberg. A collective agreement must take all those factors into account, he said.

In addition to weak production figures and declining business prospects, companies worry about the rising costs of work. In the industry, labor costs increased by 4.2 percent in 2013, and in 2012 by 6 percent. From January to August of this year, they rose 2 percent.

Mr. Kirchhoff said it is unreasonable to demand 5.5-percent wage increases in such a precarious economy. “Unions know that we also need revenues to keep our workplaces up-to-date and not to miss the boat.” In other words, every euro that paid out to employees is one that is not used for modernizing machinery or digitalizing production.

IG Metall does not dispute this. But half of the 1.2 percent in economic growth predicted for 2015 comes from private consumption, noted Wilfried Kurtzke, who is responsible for basic issues and social policy at IG Metall.

“With an unfavorable wage settlement, we would undermine these positive expectations,” he said.


Frank Specht writes about the jobs market and labor unions from Handelsblatt's Berlin office. To contact the author: [email protected].