Future of Collective Bargaining in Germany and the Importance of the recently introduced Minimum Wage Regulations

Future of Collective Bargaining in Germany and the Importance of the recently introduced Minimum Wage Regulations Thorsten Schulten Council of Nordic Trade Unions (NFS) & Friedrich Ebert Foundation (FES) Seminar on Wage Formation Oslo, 2 October 2014 www.wsi.de

Content: 1. Trends in German Collective Bargaining 2. Implications for Wage Developments and Economic Performance 3. Recent developments in German wage policy Introduction of a statutory minimum wage Re-strengthening of collective bargaining through improved regulation on extension 2

Trends in German Collective Bargaining: Partial Erosion of Collective Bargaining: Decrease of Bargaining Coverage Decentralisation: Use of opening-clauses Fragmentation: Growing gap between core and peripheral workforce / increasing importance of precarious employment Partial Erosion of Trade Union Power: Decrease in Union Density 3

Collective Bargaining Coverage in Germany 1998-2013 in % 80 75 70 65 76 68 63 60 55 50 45 52 60 52 47 40 35 30 West (all agreements) West (sectoral agreements) East (all agreements) East (sectoral agreements) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 35 4

Collective Bargaining Coverage in selected sectors, 2010, in % Public Administration 100 Education 95 Financing 89 Energy 84 Postal services 80 Chemicals Mining Automobile Industry 67 69 68 Telecommunication Total Economy 55 57 Construction Transport Health & Social Services 45 44 47 Retail 40 Hotels & Restaurants Garment Industry 34 36 Wholesale 30 Scientific & Technical Services 27 Automotive Trade IT Services 15 19 Source: Destatis 5 0 20 40 60 80 100 120

Collective Bargaining Coverage in different wage quintiles (1 = the lowest quintile), in % 80 70 60 50 40 30 33 40 51 59 66 20 10 6 0 1 2 3 4 5 Source: WSI LohnSpiegel Database

25 Incidence of Low Pay in Germany Workers with a wage below two third of the median wage in % of all workers 24,3 24 23 22 21 20 19 18,8 Germany has one of the largest Low Wage Sectors in Europe!!! 18 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 7

40 Trade union density in Germany Employed trade union members in % of all employees (net density rate) 36,0 35 30 25 24,6 20 18,0 15 8 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Content: 1. Trends in German Collective Bargaining 2. Implications for Wage Developments and Economic Performance 3. Recent developments in German wage policy Introduction of a statutory minimum wage Re-strengthening of collective bargaining through improved regulation on extension 9

Collectively agreed and actual wages in Germany in real terms (deflated by consumer price developments) in % to the previous year 2,5 2,0 2,3 1,5 1,0 1,0 1,3 1,4 1,2 1,2 0,9 1,2 0,5 0,4 Wage Drift 0,3 0,7 0,7 0,7 0,0 0,1 0,0 0,0 0,0 0,0 0,5 0,0-0,1-0,1-0,3-0,3-0,1 1,0 1,5 10-1,1-1,3-0,7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-0,9 Actual wages per employee Collectively agreed wages

Economic imbalances in Europe Account balances in Billion Euro 500,0 400,0 300,0 200,0 100,0 0,0-100,0-200,0-300,0-400,0 Surplus States Deficit States 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Germany Netherlands Sweden Italy Denmark Spain Ireland Austria CZ SI SK HU Portugal Finland Belgium Greece Poland France UK 11

Exports, imports and private consumption in Germany 2000-2013, 2000 = 100 200 190 180 170 160 150 Exports Imports Private Consumption 191,6 168,6 140 130 120 110 109,1 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 12

Content: 1. Trends in German Collective Bargaining 2. Implications for Wage Developments and Economic Performance 3. Recent developments in German wage policy Introduction of a statutory minimum wage Re-strengthening of collective bargaining through improved regulation on extension 13

Introduction of a Statutory Minimum Wage in Germany Introduction of a National Minimum Wage of 8,50 per Hour from 1 January 2015 Temporary exceptions are on the basis of sector-level collective agreements until 31 December 2016 Permanent exceptions for workers under 18 and long-term unemployed (in the first 6 months) Adjustment every two years on the basis of average collectively agreed pay developments decided by a bipartite Minimum Wage Commission (with employers and trade union representatives) 14

Minimum wages in Europe per hour, in Euro, 2014 15 LU FR NL BE IE DE* UK SI MT ES EL PT PL HR EE SK HU CZ LV LT RO BU 1,14 1,04 4,56 4,15 3,91 3,35 2,92 2,31 2,30 2,13 2,02 1,97 1,95 1,93 1,76 7,43 9,53 9,11 9,10 8,65 8,50 11,10 * from 1 January 2015; Source: WSI Minimum Wage Database, January 2014 0,00 2,00 4,00 6,00 8,00 10,00 12,00

Relative Level of Minimum Wages Minimum wage in % of median wage, 2012 16 FR SI PT HU BE LV DE IE LT UK NL PL SK RO ES EL LU EE CZ 36 36 48 48 47 47 47 47 45 44 43 42 51 51 51 54 62 60 58 Lowest agreed MW in the Nordic countries: 60%-70% Source: OECD 0 10 20 30 40 50 60 70

Introduction of a Statutory Minimum Wage in Germany Between 3 and 4 Million workers will get a wage increase because of the MW Wage development of low wage workers in line with development of collectively agreed pay Wage floor which stabilise collective bargaining Problems: Relatively low level of the MW Enforcement of MW 17

Extension of Collective Agreements in Germany A quorum of 50% CB coverage Extension in public interest Confirmation of national CB Committee Collective Agreement Act (1949) Yes Yes Yes Posted Workers Act (1996/2009) Content of No limitation Limited to minimum extended agreements wages etc. Sectoral Coverage Total Economy Limited to certain sectors No Yes No Level of regulation National and regional agreements Only nation-wide agreements. 18

% Extended CA on the basis of the Collective Agreement Act* 450 7 408 407 398 402 405 400 378 6 350 5,4 5,1 4,8 4,7 4,5 333 347 330 5 300 250 4,1 3,8 3,5 3,2 298 2,9 280 286 262 2,6 2,5 2,2 249 242 232 234 233 245 235 239 239 239 4 3 200 2,0 1,8 1,5 1,5 1,5 1,5 1,5 1,7 1,7 1,7 2 150 1 100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 * Only original agreements without parralle or amending agreements Source: MInistry of Labour, Calculations by the WSI 19 n

Extended CA on the basis of the Posted Workers Act* Sector-wide minimum wages in Euro per hour Sector West East Construction 11,10/13.95 10,50 Roofing 11,55 11,55 Electro trade 10,00 9,10 Painting 9,90/12,50 9,90/10,50 Stonemason 11,25 10,86 Mining services 11,92/13,24 11,92/13,24 Cleaning 9,31/12,33 7,96/10,31 Scaffolder 10,00 10,00 Waste Disposal 8,86 8,86 Security Services 7,50-8,90 7,50 Care 9,00 8,00 Meet industry 7,75 7,75 Further Training 13,00 11,65 Temporary Agency Work 8,50 7,86 20

Extension of Collective Agreements in Germany A quorum of 50% CB coverage Extension in public interest Confirmation of national CB Committee Content of extended agreements Collective Agreement Act (1949) No Yes Yes No limitation Posted Workers Act (1996/2009) No Yes No Limited to minimum wages etc. Sectoral Coverage Total Economy Total economy Level of regulation National and regional agreements Only nation-wide agreements. 21

Bargaining Coverage and the Use of Extension 100 90 97 96 92 92 91 90 85 85 84 frequent use of extension or functional equivalents 80 70 74 73 65 rare use of extension or functional equivalents 60 50 58 58 55 52 52 no use of extension or functional equivalents 42 41 40 35 34 33 31 29 30 25 20 10 20 20 18 12 13 0 AT BE FR SI SE FI DK IT NL NO ES EL DE LU MT CH CY IE CZ SK HU PT* UK PL EE LV RO BG LT US Source: ICTWSS Database (Version 4.0), national sources; * including public sector 22

Conclusion: 1. Introduction of the minimum wage and improved regulation on extension have the potential to strengthen collective bargaining and wage formation in Germany 2. Important institutional reforms to support a necessary change towards a more expansive and more solidaristic wage policy 3. Trade unions have the challenge to transform the somewhat improved framework conditions to strengthen their organisational power basis 23

Public Image of German Trade Unions in % of all persons surveyed* 50 45 40 35 45 41 34 32 35 38 41 30 25 20 15 23 28 30 31 31 positive 24 20 10 negative 24 5 0 * Missing figures to 100% = undecided Source: Allensbach Instituit für Demoskopie 2003 2004 2006 2007 2009 2010 2012

Further Information: WSI Collective Agreement Archive: www.tarifvertrag.de Further Reading: www.wsi.de 25