Pilot agreements signed in metalworking after strike

In May 2002, the collective bargaining parties in metalworking signed new agreements in the bargaining district of Baden-Württemberg, after 10 days of strike action. The new settlements, which are expected to be adopted as pilot agreements for the whole German metalworking industry, provide for pay increases of 4% in 2002 and 3.1% in 2003, as well as the introduction of a new grading system which abolishes the traditional distinction between blue- and white-collar workers.

On 15 May 2002, the regional metalworking employers' association in Baden-Württemberg, Südwestmetall, and the district organisation of the German Metalworkers' Union (IG Metall) concluded new pay agreements and agreed on the introduction of a new pay framework agreement (Entgeltrahmen-Tarifvertrag, ERA). The new settlements were reached after a rather complicated bargaining round in which the parties originally had very conflicting claims and expectations (DE0112248F).

After negotiations started in February 2002, several rounds of talks took place without any results. Thus, on 19 April IG Metall declared that the negotiations had failed and called on its members to go on strike (DE0205205F). After strike votes had shown overwhelming support for action from around 90% of IG Metall members, a strike started on 6 May in the bargaining district of Baden-Württemberg and later also in the Berlin/Brandenburg bargaining district. During the following 10 days, nearly 200,000 employees in more than 100 establishments participated in industrial action in Baden-Württemberg alone.

After the Baden-Württemberg agreements were finally reached on 15 May, both the national board of IG Metall and the national metalworking employers' association, Gesamtmetall recommended to all the other regional bargaining commissions that they adopt the results of the Baden-Württemberg settlements. They are thus widely regarded as pilot agreements which will become valid for most of the 3.6 million employees in German metalworking. However, the regional metalworking employers' association in Saxony, east Germany, announced that it was not prepared to adopt all the provisions of the Baden-Württemberg agreements.

The agreements in detail

There were two main issues on the 2002 bargaining agenda in metalworking - increases in collectively agreed pay and the modernisation of the pay framework agreement ( RA).

Pay increases

The new pay agreements have a duration of 22 months from 1 March 2002 to 31 December 2003. They provide for:

• two so-called 'zero-months' with no pay increase in March and April 2002;
• a flat-rate payment of EUR 120 in May 2002;
• a 4% pay increase from 1 June 2002; and
• a 3.1% pay increase from 1 June 2003

Originally, IG Metall demanded a pay increase of 6.5% over a duration of 12 months while Gesamtmetall's first offer was a two-year agreement with a 2% pay increase in 2002 and a further 2% in 2003.

The new pay agreements also include a special 'emergency clause' whereby the management and works council at a company can make a joint application to the sectoral collective bargaining parties to diverge from the agreed pay increases for a limited period, in the event that the company is in danger of bankruptcy. The application must be accompanied by a concrete 'rehabilitation' plan for the firm, and the company has to agree to make no redundancies during the period of deviation from the pay agreements. In any event, the deviation needs the support of both IG Metall and the relevant regional metalworking employers' association.

The newly agreed pay increases in metalworking are among the highest since the early 1990s - see the table below - and are significantly higher that the very moderate increases determined in the previous pay agreement in 2000 (DE0004255F). They are also somewhat higher than the agreed pay increases in chemicals, where the first major pay settlement of the 2002 bargaining round was concluded in April (DE0205204F).

* Excluding flat-rate payments and working time reductions; ** agreed in the previous year.

Source: WSI Collective Agreement Archive 2002.

Modernisation of pay framework agreements

After IG Metall and Gesamtmetall had negotiated on the introduction of new pay framework agreements for many years, in the 2002 bargaining round the union declared that it would not sign any new agreements without a deal on a new grading system which included, in particular, the abolition of the traditional distinction between blue- and white-collar workers. The employers' association had also agreed on the need for a reform of the old grading system, but had always emphasised that this project had to be 'cost-neutral'.

On 15 April 2002, IG Metall and Südwestmetall reached an agreement on the basic structure of a new pay framework settlement in Baden-Württemberg and agreed to negotiate the further controversial details by the end of 2002. The new pay framework agreement establishes a new single-status grading systems (covering both blue- and white-collar workers) which will be composed of a basic grade (mainly depending on the demands of the job), a standardised performance-related pay component of 15% of the basic pay, and extra payments for special working conditions. The basic monthly minimum pay rate under the new pay framework agreement (ERA-Eckentgelt) will be EUR 2,035. Companies will have to introduce the new grading system by the end of 2007 or, in some exceptional cases with the permission of the collective bargaining parties, by the end of 2008.

IG Metall and Südwestmetall agreed on a calculation model whereby the average total adjustment costs for the introduction of the new single-status grading system will be equivalent to a 2.79% pay increase, which might result from the upgrading of certain groups of employees. Both parties also agreed on the principle that companies should not have additional costs because of the introduction of a new pay framework, so that the adjustment costs have to be covered from the annual pay increases.

Thus, the agreed pay increases for the coming years will include a so called 'structural component for the new pay framework agreement' (ERA-Strukturkomponente), as follows:

• in 2002, the agreed 4% pay increase will be divided into a 3.1% normal pay increase and a 0.9% ERA-Strukturkomponente. The latter will be paid as flat-rate payments in 2002 and the first half of 2003. From June to December 2003 the 0.9% ERA-Strukturkomponente will be put into an 'adjustment fund' at company level, which is to be used for financing the adjustment costs of the new grading system; and
• in 2003, the agreed 3.1% pay increase will be divided into a 2.6% normal pay increase and a 0.5% ERA-Strukturkomponente. The latter will be paid as a flat-rate payment in 2003. Later on it will also be put into the adjustment funds at company level.

Both parties declared that future pay increases will have to consider the remaining adjustment costs related to the new pay framework.

Reactions to the new agreements

Trade union reactions

In press statement, the president of IG Metall, Klaus Zwickel, called the new agreements a 'good result' which provide for significant growth in real wages and will thus make an important contribution to a reinforcement of economic growth through an increase in domestic demand. Mr Zwickel also emphasised the importance of the new pay framework agreement which will create a more just grading system and correspond better to the needs of modern work organisation. The IG Metall chief negotiator in Baden Württemberg, Berthold Huber, called the new pay framework agreement 'a major reform of collective agreements in metalworking', which shows that the German bargaining system is able to adjust to a changing work environment.

In the view of IG Metall, all these results could be achieved only after the union had shown its capability to take industrial action and to go on strike. There are, however, some voices within IG Metall which take a more critical view on the recent bargaining results. For example, Erich Klemm, the president of the general works council of DaimlerChrysler and a member of IG Metall's negotiation commission, remarked that parts of the union's membership - in particular in well-performing companies - had much higher expectations.

Employers' reactions

The employers' reactions to the new metalworking settlements were rather ambiguous. The president of Südwestmetall and chief negotiator on the employers' side, Otmar Zwiebelhofer, said in a press statement that the increase in labour costs arising from the new pay agreements is at the upper limit of what is acceptable. Taking into account the agreed 'zero-months' with no pay increase, as well as the relatively long duration of the pay agreements Mr Zwiebelhofer calculated that the annual increase in labour costs will be 3.46% in 2002 and 3.1% in 2003. The employers also expressed their satisfaction that the introduction of the new pay framework will be 'cost-neutral', since adjustment costs have to be covered by regular pay increases.

Mr Zwiebelhofer, however, criticised the new pay agreements as 'being about one percentage point too high for companies to create new jobs'. Indeed, the president of Südwestmetall expected that many companies would intensify the speed of rationalisation policies in order to decrease their labour costs. The president of the German Machinery and Plant Manufacturers' Association (Verband Deutscher Maschinen- und Anlagebau, VDMA), Diether Klingelnberg, even accused IG Metall of being the 'number one job killer' in Germany and expressed his fears that the new pay agreements will 'cost thousands of people their jobs in the German engineering industry'.

Finally, the president of the Confederation of German Employers' Associations (Bundesvereinigungder deutschen Arbeitgeberverbände, BDA), Dieter Hundt, said that the IG Metall strike had 'blackmailed' the employers into accepting an agreement which for many companies is very difficult to cope with. In this light, there are two conclusions that the employers draw from the recent bargaining round in metalworking. First, they have called for more differentiated pay increases according to the performance of the company, and second they take the view that strikes do not fit into a modern economy and should be replaced by new mechanisms and institutions which allow for a more peaceful regulation of conflicts.

European metalworkers' unions support IG Metall

On 10 May 2002, the European Metalworkers' Federation (EMF) held a meeting with more than 20 presidents and general secretaries of European metalworkers' unions at IG Metall's headquarters in Frankfurt, in order to express its solidarity and support for the German metalworkers union. At the meeting, EMF and IG Metall jointly presented a so-called Frankfurt declaration, which emphasises that within the euro zone 'there is no national collective bargaining any longer'. Because of the economic weight of the German economy, the recent German bargaining round is also seen to be of particular importance for collective bargaining in other European countries.

EMF has confirmed its project of European coordination of national pay policy on the basis of a 'European coordination rule' which was adopted at the EMF's collective bargaining conference in 1998 (DE9812283F) and later verified at the 2001 bargaining conference (EU0108241F). According to this rule, national collective agreements should at least seek to offset the rate of inflation and ensure that employees' incomes reflect a balanced participation in productivity gains. EMF sees its coordination rule as – in the words of the Frankfurt declaration –a 'political tool for fighting against wage dumping in Europe'. At the same time, EMF sees its coordination of pay policy as an important contribution to 'stability-oriented wage developments' within the euro zone, which should be able to promote economic growth by strengthening employees' purchasing power.

Supporting IG Metall's position, EMF also criticised the European Central Bank which – with a view to Germany – has recently raised its concerns about the possible inflationary impact of apparently 'excessive pay demands'.

Finally, the joint IG Metall/EMF Frankfurt declaration sends out four 'messages':

1. IG Metall will do everything in its power to continue the course of non-inflationary wage policy. This policy will promote growth and employment only if the results of collective bargaining are at least commensurate with the increases in productivity and inflation;
2. the European metalworking unions underscored their solidarity with the strike in the German metalworking industry and rejected any efforts to relocate production and use strike-breakers;
3. the strike in the German metalworking industry is the 'starting gun' for EMF to intensify its coordination work. The European metalworking trade unions will be cooperating closely in the future whenever there are cross-border conflicts, by setting up their own coordination group for this purpose; and
4. it is in the interest of the European metalworking unions to strengthen EMF in order better to meet new challenges emanating from the completion of the single European market.

Commentary

Since the introduction of EU Economic and Monetary Union, collective bargaining in German metalworking is not only of national but also of European interest. There are many observers in the political and academic field who see IG Metall not only as the German, but increasingly also as the European, pace-setter in collective bargaining. If this argument is correct, IG Metall will gain an increasing responsibility for economic developments in whole euro zone. This would mean that, on the one hand, IG Metall has to promote pay developments which do not contribute to accelerating price increases. Considering the pay developments in German metalworking during the 1990s, however, the danger of inflationary pay developments coming from Germany are not very likely.

On the contrary, there has been more the problem that in the 1990s German real pay developments often lagged behind productivity growth and thereby had a more deflationary impact. Such a 'too moderate' pay policy is in many respects problematic. First, a policy of pay restraint in Germany automatically puts pressure on the trade unions in other European countries also to accept only low pay increases. It is therefore fully recognised by the other European metalworkers' union that IG Metall's strike has also de facto helped to increase the space for wage growth in their own countries.

Second, the moderate pay increases in Germany are one major reason why domestic demand has increasingly lagged behind the development of extremely profitable export industries. Such imbalances, however, have contributed to the fact that Germany has one of the lowest economic growth rates in Europe and so far has seen no substantial reduction of unemployment.

Third, the restrained German pay developments in the 1990s led to a significant redistribution from labour to capital income which more and more put the issue of 'distributional justice' on the bargaining agenda. The high expectations among IG Metall members in the recent bargaining round were primarily an expression of a perception of 'unfair distribution' between employers and employees. It is therefore obvious that a simple continuation of the moderate pay policy of the 1990s would create more and more resistance among employees and would contribute to more conflictual industrial relations in general. In contrast to the view of many academic observers (especially in economics), the results of the recent bargaining round in German metalworking might become not an 'exception to the rule' but a way back to a fairer sharing of wealth, which at the same time might provide a better contribution to resolving the economic problems of Germany and Europe as a whole.

Apart from the level of pay increases, the recent bargaining round in German metalworking also finally brought a major qualitative reform of existing collective agreements. After several years of negotiations, the introduction of a new pay framework agreement will lead to a fundamental modernisation of the grading system, which replaces the old status-orientated method of grading in favour of a more task- and performance-related system. Moreover, the new pay framework agreement also sets a good example, showing that the German collective bargaining system has the capability to reform in order to meet the needs of modern working reality. (Thorsten Schulten, Institute for Economic and Social Science, WSI)