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Union policies and strategies in response to the Coronavirus emergency in Germany

by Volker Telljohann, Ires Emilia-Romagna

Context

In Germany, the automotive sector is of great importance in terms of both GDP and employment. The automotive industry, according to data from the Federal Employment Agency, employs 830,000 people and alone accounts for at least 5% of Germany’s GDP. In addition, there are a further 1.2 million jobs that depend on the automotive sector. Currently, also in the automotive sector employment is threatened by the collapse of GDP due to the effects of the pandemic. In the second quarter of 2020, GDP fell by 9.7% compared to the previous quarter.

In addition to suffering the effects of the Coronavirus crisis, the sector is also undergoing a profound transformation towards electric mobility, stimulated by concerns about climate change. This transformation not only concerns car manufacturers but also implies a radical change in the entire production chain. Overall, the transition to the electric car requires less manpower. Another factor impacting on employment concerns automation and digitization, which lead to profound changes in production processes. Digitization processes also involve changes in the employment structure. The blue collar workers will decrease in favour of more specialized workers.

Currently, the problem is that all these structural changes occur contemporaneously with the worst economic recession in the post-war period. This constellation could induce car manufacturers and suppliers to carry out cuts that are unprecedented in German industrial history.

In January, a study by the National Platform Future of Mobility (NPM) predicted a loss of 400,000 jobs in the German automotive industry in the worst-case scenario by 2030, when the European Union’s emission standards will come into force.

The role of the short-term working allowance

An important tool against unemployment is the short-time working allowance (Kurzarbeitergeld). This tool is used when companies are in economic difficulties. It is, therefore, a social shock absorber aimed at maintaining employment levels by temporarily reducing working hours. In 2008, during the financial crisis, this tool was enhanced not only to mitigate the crisis for workers, but also to help companies to preserve the skills they needed for recovery.

The recession caused by Covid-19 has again made it necessary to develop an income and business support policy. In order to apply for the short-time working allowance it is necessary that the company has suffered a temporary and inevitable reduction in income. The short-time working allowance can be requested by the company either for a reduction in working hours or for its temporary suspension. To facilitate access to the short-time working allowance during the coronavirus emergency, it is sufficient that at least 10% of a company’s employees are suffering a loss of more than 10% of their salary. In addition, companies obtain full reimbursement of social security contributions from the Federal Employment Agency. Short-time working allowance can also be claimed for temporary agency workers. Another facilitation of access to the short-time working allowance is that wage compensation is granted even in the absence of a negative working time account.

In addition to the reduced salary, the worker receives a subsidy from the Federal Employment Agency equal to 60% of the lost net salary. If there are dependent children, the rate is increased to 67%. The 60% coverage (67%) is however one of the lowest in the European Union. For this reason the German trade union insisted on an increase in the rate. Thus at the end of April the government decided to increase the wage supplementation benefits until the end of 2020. The rate rises to 70% from the fourth month (77% with children) and to 80% from the seventh month (87% with children).

Since the wage integration benefits are scheduled for 12 months, which can be extended to 21, but not exceeding December 31, 2020, the union has also requested an extension of the period of entitlement to short-time working allowance. Faced with the severity of the crisis, the government coalition between CDU-CSU and SPD on August 25th welcomed the proposal to extend the benefits to 24 months, but not exceeding December 31, 2021. The increase in wage integration benefits is also being extended until the end of 2021. On the other hand, social security contributions from July 1, 2021 will be refunded in full only to companies that use the period of entitlement to short-time working allowance for the qualification of their employees.

The new short-time working allowance scheme is expected to cost 10 billion Euros. It is an investment that should help stabilize the labour market and while waiting for a return to full employment it should also serve to support the consumption of short-time workers.

The importance of this expansion of the short-time working allowance is also confirmed by data from the Federal Employment Agency. According to the most recent data, wage subsidies were paid in March for 2.46 million employees, in April for 5.98, in May for 5.82 and in June for 5.36 million employees. For the month of August, the Munich-based economic research institute Ifo estimates that the number has dropped to 4.6 million employees, which corresponds to 14% of all employees covered by social security. During the financial crisis the maximum value was 1.44 million employees in May 2009. Of the 4.6 million short-time workers in August, 1.9 million were employed in industry, i.e. 27% of all employees in industry.  

Since there will still be workers who will lose their jobs, there is also a form of short-time working allowance among the social shock absorbers that has the function of facilitating the transition to a new employer or self-employment. In this case the subsidy from the Federal Employment Agency is paid for a maximum of twelve months and is equal to 60% of the net salary. If there are dependent children, the rate is increased to 67%.

Renewal of the collective agreement in the metalworking industry

Even if the German government is taking action to strengthen the short-time working allowance, it is not certain that these measures are sufficient to prevent an increase in unemployment in the medium term. A rapid recovery seems unlikely. Economists expect a return to pre-crisis levels no earlier than 2022/2023. Even the extension of the period of entitlement to the short-time working allowance to 24 months may not be sufficient to avoid large-scale layoffs.

For this reason IG Metall, the metalworkers’ union, is also focusing on the instrument of working time reduction. In view of the renewal of the metalworkers’ collective agreement, IG Metall’s Secretary General, Jörg Hofmann, has already proposed the introduction of a four-day week

Negotiations for the new collective agreement for the approximately 4 million metalworkers will start at the beginning of 2021. This implies that IG Metall’s steering committee will make recommendations for the platform in October 2020. After that a discussion with the union base is scheduled for a period of four weeks, which should lead to the presentation of the final platform on November 17. 

Faced with the challenges of the economic crisis and structural changes, the reduction of working hours could be at the heart of trade union demands.

Proposal for a four-day working week

In this climate of great uncertainty caused by the pandemic, according to Hofmann, the four-day working week could save jobs threatened by the crisis and transformation processes. By working less it is possible to share those jobs that tend to shrink. The four-day working week could therefore be a remedy to maintain employment levels during and after the coronavirus emergency. For companies there would be the advantage of not losing the high level of specialization of workers. Otherwise, given the demographic trend, it could become very difficult to find the necessary specialized personnel once production is back at full capacity. Moreover, by giving up redundancy plans, companies would also save money for expensive social plans.

However, Hofmann added that “a certain compensation of wages so that workers can afford it” is also necessary. At least a partial wage compensation is considered fundamental to avoid a significant loss of purchasing power of workers. The four-day working week would also have the advantage of bringing improvements in the reconciliation of work and family to the workers as well.

According to IG Metall, the reduction in working hours should also be accompanied by incentives to promote professional qualification processes. The use of free time for training courses would help workers to better cope with transformation processes.

In view of the renewal of the collective agreement, the Secretary General of IG Metall of Bavaria, Johann Horn, is also convinced that the four-day working week can be an important tool for managing structural change due to both digitization and transformation processes as a result of climate change. According to Horn, these structural changes require secure jobs. Since there is enormous potential for productivity gains in the transformation processes, Horn also believes that it is justified to ask companies to make a contribution in the form of wage compensation.

It seems that the proposal of a four-day working week is also supported by the majority of the German population. According to a survey by the Yougov company, 60% of Germans are in favour of the proposal by IG Metall.

First company cases

At the company level there are already the first cases in which IG Metall has managed to impose its demands for reduced working hours. According to the union, many companies tend to react to the coronavirus emergency in a one-dimensional way threatening job cuts. Sometimes they also use the coronavirus crisis as an excuse to make job cuts or relocations that they had already planned before the emergency to reduce labour costs. The defence of employment, also through the reduction of working hours, becomes at this stage the primary objective of the metalworkers’ union.

Daimler, which initially stated that it wanted to reduce fixed costs by 1.4 billion euros by 2022 in mid-July, announced even more drastic cuts that included redundancies for justified objective reasons. IG Metall has opposed this scenario from the outset, pointing out that there is a company agreement that provides employment guarantees until 2030. In negotiations with the company, IG Metall and the works council finally managed to obtain confirmation of the validity of the employment guarantees. On the other hand, a reduction of working hours by two hours per week for one year without wage compensation was agreed upon. This 5.71% reduction in working time, which will start in October, concerns the administration and research and development area. In addition, the additional contractual increase of €400 set by the 2018 collective bargaining agreement will be converted into vacation days. The agreement also provides for a qualification programme for workers in order to develop the necessary skills to deal with the changes in work related to the transformation processes.

At Bosch too dismissals for justified objective reasons were excluded. After several mobilizations, IG Metall and the works council have obtained that the impact of the coronavirus emergency will be managed through the use of short-time working allowance and the reduction in weekly working hours. In the administration, distribution and research and development areas the weekly working time will be reduced in a differentiated way. For employees with contracts that provide a weekly working time of up to 35 hours a reduction in working time of 8.57%  is expected, with a partial wage compensation through the increase of the thirteenth month pay.  For employees who have contracts that provide for a weekly working time of more than 35 hours, there is a 10% reduction in working time without wage compensation. In the meantime, these regulations apply to 35,000 workers in the Stuttgart area. Negotiations for employees at the other German plants are still ongoing.

Concerning production, Bosch will apply for short-time working allowance until the end of the year. Of the 130,000 employees in Germany, about one-third had to apply for the short-time working allowance in mid-July. It was agreed with IG Metall that the company will provide a supplement through which employees will earn 80.5 to 95.5 percent of their net wages.

Another agreement was signed at ZF Friedrichshafen, which has about 50,000 employees in Germany. Also in this case, dismissals for justified objective reasons and plant closures were ruled out. These results obtained by IG Metall and the works council are valid until the end of 2022. With the agreement, periods of lack of orders can be managed through the use of the short-time working allowance and the reduction of weekly working hours. For the company this agreement guarantees a higher flexibility in the management of the workforce. ZF also guarantees that all apprentices will be confirmed at the end of their apprenticeship. In addition, the volume of apprenticeship places is maintained at current levels. In 2020, on the other hand, employees will renounce the additional contract increase of 400 € set by the 2018 collective bargaining agreement.

As far as the use of the short-time working allowance is concerned, the company will pay the supplement provided for in the collective bargaining agreement signed in Baden-Württemberg, through which employees receive 90% of the net salary. In order to guarantee the same conditions for all employees of the group, this supplement is also provided for plants located in other regions of Germany. The use of the short-time working allowance also provides for the possibility of qualification processes for the employees.

When the period of entitlement to the short-time working allowance has expired there will still be the possibility of applying the regional collective agreement “Reduced hours, qualification and employment“, which provides for the possibility of a reduction in working hours of up to 20% and partial wage compensation.

To respond to the lack of orders the agreement, however, also provides for voluntary redundancies and incentives through the payment of settlements. Another tool to reduce the workforce consists in the anticipation of retirement linked to part-time work.

The agreement also provides that by 2022 visions for the future will be developed for each individual site. It would be a matter, therefore, of advancing hypotheses of development for the respective sites identifying products, investments and qualification processes that can guarantee employment even after 2022. This scenario building exercise will be carried out by bilateral committees at the respective site level composed of management and works council representatives.  This process should also have the function of supporting and promoting the group’s transformation processes. In case of conflicts, a bilateral coordination structure at group level composed of works council and management members will take the final decision. The coordination structure discusses restructuring and investment projects at the group level and should ensure that saturation of production capacity at one site is not at the expense of another site. According to Achim Dietrich, the chairman of the works council, “this transparency is essential to be able to distribute products and tasks within the group in a solidary way.”

According to IG Metall, these company-level agreements are also in the interest of the companies themselves, which can thus preserve the employees’ professional skills and competencies and avoid the costs associated with redundancies.

IG Metall also considers these company-level agreements to be a benchmark for other companies such as Continental and Airbus where negotiations are still ongoing. From a trade union point of view these agreements also have the function of avoiding a unilateral management of the effects of the economic crisis and, therefore, to prevent the risk of a downward competition through the dismantling of social standards.

At the same time, the agreements signed at Daimler, Bosch and ZF also contain first indications for the negotiations on the renewal of the collective bargaining agreement that will start at the beginning of 2021. Here, too, demands for reduced working hours and qualification paths to defend employment levels might be at the heart of the trade union strategy.

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