HRM 603 – COMPARATIVE STUDIES

IN INDUSTRIAL & EMPLOYMENT

RELATIONS

Topic 5:
EMPLOYMENT RELATIONS
IN GERMANY
LECTURE OUTLINE
• Key themes
• Historical background
• The parties:
–Employers and their associations
–Unions
–The state
• Co-determination
• Collective bargaining
• Industrial disputes
• Current and future issues
• Conclusions
 KEY THEMES
• Germany is frequently seen as the exemplar of a highly coordinated
and regulated market economy
• In the German ER system, employee interests are represented in a
dual system: co-determination at the workplace and company levels
as well as collective bargaining at the industry level
• A minority of employees enjoy this representation, however, and this
‘duality’ is slowly eroding
• The number of industrial disputes is relatively low due to the
centralisation of the system, a certain degree of cooperation and
trust, and alternative dispute resolution mechanisms
• The gradual shift towards the Anglo-American Liberal Market
Economy model is evidenced by the decentralisation of collective
bargaining, more flexible labour practices, and a growing emphasis on
share-holder interests. However, a complete convergence is unlikely
 BACKGROUND
• West Germany experienced very strong economic performance after
World War II
• The high-productivity, high-value-added, high-wage, high-skill model
lasted to the mid-1970s
• The collapse of the Bretton Woods system and the oil crises in the 1970s
contributed to economic decline in the West German economy
• There was some recovery in the 1980s, but problems arose with the
integration of the socialist East German economy in 1990, and between
the mid-1990s and mid-2000s, economic growth was low and
unemployment high
• The political system has been continuous and stable
• Germany is a federal system but employment relations policy is uniform
across states (in contrast to Canada or the US)
• Germany has a comprehensive welfare system focused on occupational
status and the insurance principle
 EMPLOYERS AND THEIR
ASSOCIATIONS
• There are three types of interest organisations in Germany:
1. Business or trade associations represent general business and product market
interests, lobbying: peak federation BDI
2. Special employer associations engage in social policy, employment relations,
collective bargaining: peak federation BDA
3. Chambers of industry and commerce

• Employers’ associations, which are responsible for collective bargaining,

represent firms according to industries as well as regions
• Membership density is estimated to be high but has declined in recent
decades
• All member companies must abide by the collective agreements that their
employer association negotiates with a union, a system which has caused
dissatisfaction amongst SMEs
• In an attempt to counter membership loss, some associations allow
companies to be members without being bound to collective agreements
UNIONS 1
• Unions were established after WWII according to the
principles of industrial unionism and unitary unionism
• Industry unions engage in collective bargaining whilst
the peak federation (DGB) is responsible for political
activities
• The organisational structure of unions was stable until
the mid-1990s when shrinking membership, decreasing
financial resources and structural changes led to a
flurry of merger activity. Now there are eight DGB-
affiliated unions
 UNIONS 2
• Unions have been losing members since the 1990s and
density has been at an all-time low of 20% since the early
2000s
• Losses contributed to a decline in union bargaining power
and the rise of a major non-union sector
• Union membership is concentrated amongst skilled, male,
full-time workers in the manufacturing and public sectors
• In order to strengthen their position, unions must organise
groups who are under-represented in membership, e.g.
women, young people, and highly skilled, white-collar and
foreign workers
 THE STATE 1
• German employment relations are characterised by a high
degree of jurisdification.
– The Works Constitution Act regulates how an employer and a works
council interact at the plant level
– Co-Determination Acts regulate how an employer and employee
representatives interact on the company-level supervisory board
– The Act on Collective Agreements regulates collective bargaining
– The constitution guarantees the right to freedom of association
• An independent and specialised system of labour courts
operates at local, regional and national levels
• The social partners engage in collective bargaining without
active state interference (principle of ‘free collective
bargaining’)
 THE STATE 2
• Employers frequently extend collective agreements to all
employees so as to avoid providing incentives to join a union
• Industrial action is prohibited during the term of an
agreement
• The social partners have a high degree of freedom to
determine their own structures and dealings e.g. mediation
agreements are formed from voluntary negotiations
between social partners without state intervention
• The state has played an active role through corporatist
arrangements, peaking in late 1960s and 1970s
 ER PROCESSES: CO-DETERMINATION 1
• Co-determination is the principal feature of employment relations
in Germany, based on the idea of industrial democracy and
cooperation
Co-determination at the workplace level
• Works councils have a set of rights on 3 sets of issues:
– economic and financial affairs
– staff matters, and
– social issues
• Rights range from information, through consultation to binding co-
determination and veto rights. These rights vary depending on the
issue
• The Works Constitution Act does not apply to very small
enterprises or public sector employees and only partially covers
NFP/NGO type organisations
 ER PROCESSES: CO-DETERMINATION 2
Co-determination at the workplace level continued
• Works agreements which are negotiated between employers and
works councils on the basis of these rights cannot contradict
industry-wide collective agreements

• Works councils are legally independent and separate from the

union and are supposed to be detached from wages and income
distribution matters. In reality, however, there is much overlap
between the activities and membership of unions and works
councils

• In many enterprises, there are no works councils, as their election

must be initiated by employees (for example, one half of all
private sector employees are not covered by works councils).
Thus there is a growing ‘representation gap’
 ER PROCESSES: CO-DETERMINATION 3
Co-determination at the company level
• German companies have a two-tier board structure – supervisory and
management boards
• A percentage of members of the supervisory board (from one-third to almost
one-half, depending on legal regulations) are employee representatives (often
they are also works councillors or union officials)
• Employee representatives are usually involved in the appointment of the labour
director to the management board
• There are three Acts on co-determination at the company level: the Co-
determination Act for the coal and steel industries, the One-Third Participation
Act (formerly the Works Constitution Act) and the Co-Determination Act
• The two channels of co-determination through works councils and employee
reps on supervisory boards have contributed to the development of
sophisticated cooperation at the company and shop-floor levels
• Thus, employment relations are characterised by the notion of mutual
recognition within a ‘social partnership’
ER PROCESSES: COLLECTIVE
BARGAINING 1
• There are three kinds of collective agreements:
1. Wage agreements fix the level of wages and their periodic increases
2. Framework agreements specify wage payment systems
3. Umbrella agreements regulate all other conditions of employment (e.g. working
time, overtime, holidays)

• In the majority of industries, collective bargaining takes place at

regional and industry levels, for example, between the regional
branches of an employer association and the union associated with
that industry
• This structure has led to pattern bargaining: for example, pilot
agreements in the metal and electrical industry may be transferred to
other regions (within the same industry) and other sectors (i.e.
different industries)
• Recently the number of collective agreements at enterprise level has
increased
ER PROCESSES: COLLECTIVE
BARGAINING 2
• Moderate level of centralisation with coordinated collective
bargaining

• Narrow wage differentials, although recently there has been a

widening

• Some companies negotiate enterprise agreements with unions

outside of the industry-wide agreement

• The coverage rate of industry-level agreements has decreased to

a ‘crisis point’: less than 60% of employees in western Germany
and 40% in the east are covered by industry agreements

• Some companies are also ‘tacitly escaping’ collective

agreements, i.e. they do not comply with certain provisions of
the agreement despite being legally bound to do so
 INDUSTRIAL DISPUTES
• Industrial disputes are usually industry-wide within a certain region
and are coordinated centrally by unions and employer associations
• Strikes as well as lockouts are legal
• Unions take ballots before a strike, and the ballots are prescribed
by union rules, not legislation as in some other countries.
• The number of industrial disputes is low compared with other
countries due to centralisation of the collective bargaining system,
the cooperation and trust that is generated through co-
determination, and the existence of alternative dispute resolution
mechanisms (conciliation, labour courts) for all disputes of rights.
• Only conflicts about the terms and conditions of new collective
agreements (disputes of interest) can be the subject of legally
sanctioned industrial action
CURRENT AND FUTURE ISSUES: PUBLIC SECTOR
EMPLOYMENT
• The state is Germany’s largest employer and employment
relations in the public sector are characterised by the
distinction between public employees and civil servants
with terms and conditions set in different ways
• Collective bargaining used to be highly centralised for all
employers but decentralisation has occurred recently and is
likely to continue
• Public sector employment has been decreasing since the
mid-1990s
• Privatisation of national utilities has had some impact on
employment levels and practices
CURRENT AND FUTURE ISSUES: MINIMUM
WAGES
• A statutory national minimum wage (of 8.50 Euro) was
introduced in 2015. Historically, extensive collective
bargaining coverage provided the safety net
• In recent years, bargaining coverage has declined and unions
in some industries are struggling to secure adequate wages
and working conditions
• This has led to the emergence of the ‘working poor’
• Governments have amended legislation to make it easier to
declare industry wage agreements as binding for all
employers
• In the future, the minimum wage is to be adjusted by an
independent body
 CURRENT AND FUTURE ISSUES: INCREASING
FLEXIBILITY 1
• Since the early 1980s, employers and their associations have demanded
more ‘flexibility’
• Flexibility can mean temporal flexibility, flexibility in wages and salaries,
functional flexibility and flexibility in forms of employment
• Temporal flexibility has been a key collective bargaining concern, with
unions winning reduced working hours in the 1980s and employers
resisting further reductions. In practice, working hours are flexible and
individual working-time accounts have been introduced for the majority
of employees
• Effective working times are longer now, whilst part-time work has
increased to more than 25% of the labour force, leading to a
polarisation of working time
• Wage and salary flexibility is also contentious. Labour’s share of the
national income is at historical lows and income inequality between
low- and high-paid workers has increased
CURRENT AND FUTURE ISSUES: INCREASING
FLEXIBILITY 2
• Functional flexibility is not a central concern in collective bargaining
because the dual system of vocational training (apprenticeships involving
training at vocational schools and in companies) provides young people
with a broad range of skills
• This coordinated training system has contributed to Germany’s ‘high
skill/high wage’ model and competitive advantage over other countries
• Flexibility in forms of employment has increased, as seen in increasing
atypical employment (part-time, petty employment, fixed term
contracts, agency work and solo-self employment)
• The growth of non-standard employment has increased tendencies of
segmentation of the labour market into a core unionised and protected
segment and a peripheral unorganised and unprotected segment
• The consequences of these changes for employment relations practices
are far-reaching
CURRENT AND FUTURE ISSUES: DECENTRALISATION OF
COLLECTIVE BARGAINING
• Germany, like other countries, has moved towards decentralised collective
bargaining, however the processes have been qualitatively different
• Since the 1980s, ‘opening clauses’ have become the major instrument of
reform, allowing companies to vary or deviate from certain provisions in the
industry-wide collective agreement
• Variations must be negotiated between employers and works councils at the
company level and laid down in a works agreement
• Works agreements are of growing importance as a result
• Final decisions about substantive issues have gradually shifted to managers
and works councils with a commensurate decline in the power of unions and
employer associations
• Thus the formal structures of industry-wide collective bargaining have
remained intact but its outcomes and functions have changed significantly
CONCLUSIONS

• The traditional highly integrated, highly regulated, ‘dual system’

is eroding

• Since the early 1990s, changes to the key institutions and

procedural rules of the German system have led to greater
variation in employment relations practices and an increasing
resemblance to the Anglo-American model, though complete
convergence is unlikely

• Decentralisation – the balance of power between unions and

employer associations, and employers and works councils has
shifted as the scope of negotiations at the enterprise level has
broadened
References
• Bamber, G., Lansbury, R., Wailes, N & Wright C (2015). International and Comparative
Employment Relations: National Regulation, Global Changes (6th ed.). UK, London: Sage
Publications Ltd.

• Bamber et al (Ed), 2004, International and Comparative Employment Relations, Allen &
Unwin, NSW.
 
• CIA-The World Factbook- Germany. Retrieved 28 th February, 2020 from
https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

• National Labour Law Profile: Federal Republic of Germany. Retrieved 28 th February, 2020 ,
from http://www.ilo.org/public/english/dialogue/ifpdial/info/national/ger.htm