Labor market crash: Corona exposes German cost problem

PProducts “made in Germany” are expensive, but innovative, reliable and first-class. That is the formula that defines the success of German industry on world markets. But what if the products are no longer perceived as innovative in one important area?

Example of automobile construction. Unlike in the past, the success of international sales is no longer a certain success for the industry, which is used to success and which characterizes entire regions of Germany.

This is due to the growing overlap between politics and economics, which is expressed here as regulation and there as protectionism. But that’s also due to the next phase of digitization, which is redefining mobility.

The spectrum on the left advocates the four-day week

The crown recession considerably exacerbates the adjustment crisis that already emerged in German industry in 2019. According to a current estimate by the Ifo Institute in Munich, 1.9 million people across manufacturing industry had not returned to their working hours. completed in August 2020, about 27 percent of all employees.

In the metal industry alone, the number of short-time workers was 465,000 and in vehicle construction 347,000. This means that almost one in three employees of automobile manufacturers and suppliers had a part-time job. A return to the previous load does not seem to be in sight at the moment. The question now is: how should the labor market be reactivated?

Trade unionists and leftist politicians are calling for a change to a four-day week. In this way, the work that is still available can be distributed more fairly.

While some economists see it as a recipe for the auto sector and industries in transition, the German economy is warning of the cost burdens that come with a four-day week for everyone, especially when wages and salaries are fully offset.

“The four-day week recently proposed by some unions and politicians would significantly increase Germany’s cost disadvantage in international competition,” says Christoph Schröder, a labor market expert at the Employer-Related Institute for German Economics (IW) in Cologne. .

So far, four industrialized countries still produce slightly more expensive than the Federal Republic. However, on average, German labor costs are already 24 percent higher than those of the competition.

“Even if only a partial 50 percent pay match were made with the same daily working hours, a reduction in working hours from five to four days would increase the cost disadvantage to 40 percent,” calculates Schröder.

Nowhere in the EU with its 27 member states would production be as expensive as in the Federal Republic of Germany. Until now, Denmark has been the most expensive place on the continent at 47 euros an hour of industrial work. In Germany, labor costs are 42 euros. Chinese companies produce for less than eight euros an hour.

The IW researcher fears that the four-day week may go too far. At a time when companies must invest and innovate, they would have to bear high labor costs. “If you compare Germany with the established competition, the labor costs of the local industry are already higher than the average of the competition.”

This cost disadvantage fluctuates, mostly due to changes in exchange rates, but has been in a 21 to 30 percent corridor since 2000. A 40 percent cost disadvantage would be a negative record for the economy. largest in Europe in this century. At best in the 1990s, Germany’s industry was equally poorly positioned on the cost side.

In the first half of 2020, labor costs in Germany increased faster than in other EU countries. This stems from an assessment by the Federal Statistical Office: “Compared to the same quarter last year, calendar-adjusted labor costs increased by 5.1 percent,” noted the Wiesbaden-based company, which is the 12-month higher increase than has been reported since the labor cost index began in 1996.

To explain this, statisticians cite that employers’ costs and hours actually worked by employees have diverged.

If sales don’t pick up, sooner or later those costs will become a burden on all businesses, and this is where the four-day week comes in again. It should better distribute the remaining work among the workforce and create a balance of interests between employees and employers.

“Depending on the design, a four-day week can be a very good tool for an industry in the process of transformation,” says Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Business Cycle Research (IMK) at the Hans Böckler Foundation. , affiliated with the union. .

“In principle, the regulation could be agreed in the collective agreement, where the amount of the salary adjustment would be detailed,” says the economist. 100 percent pay compensation would not be realistic in all cases, he admits.

A certain flexibility makes sense, which takes into account the special conditions of the respective company. For example, some areas of the automotive industry may be operating at capacity limits in the next few years, that is, where vehicles with electric motors are produced, while in others there could be a drop in orders even after the end of production. virus crisis, for example, for suppliers of combustion engines.

“The current regulation of reduced hours is not enough as the only instrument of the labor market to accompany structural change,” says Dullien. In its current form, the regulation of part-time work expires in 2021, and part-time work is a costly instrument for contributions and taxpayers.

As a general model for the entire manufacturing industry or for the entire German labor market, as demanded by the Left Party, the economist views the four-day week critically. “In some areas of the economy we already have very few workers if you think about care, for example. It seems to me that fewer hours worked in a four-day week is not convenient. “

A survey conducted by opinion research institute Civey on behalf of the Neue Soziale Marktwirtschaft Initiative (INSM) shows, however, that the industry’s willingness to address change from the recession is definitely there.

In a survey of human resource managers, more than 50 percent said their company is currently planning new hires. “Right now, this is positive news from the job market,” says INSM Managing Director Hubertus Pellengahr. However, unlike unions, companies want more flexibility in labor law.

The proposal to temporarily suspend the so-called pre-employment ban looks particularly promising. More than a third of the HR managers surveyed said they would like to hire more employees later.

“Fixed-term contracts could make it easier for companies to cope with the growing demand for labor through recruitment because the associated economic risk is reduced,” concludes IW labor market expert Holger Schäfer in a study entitled “Labor market : faster recovery thanks to flexibility. ”

Since uncertainty is not recognized as a material reason for a time limit, only a so-called non-material time limit would be challenged under German law. “In Germany, this is only allowed for new hires, ie the employee must not have been previously employed by the company.”

This means that it is not possible in this country, for example, to temporarily reintegrate employees who had to be laid off during the crisis. Schäfer suggests that this pre-employment ban should be suspended for a time to accelerate the recovery of the German labor market from the crown recession.

Dullien also advocates flexible solutions, although he has a four-day week in mind. The economist emphasizes that regulation must be adapted to the individual situation. “It should not be imposed indiscriminately on the economy.”

The four-day week could be useful as part of collective agreements that are company-related and allow flexibility. From their point of view, if conceived correctly, it is a good approach to ensure social support for the necessary transformation of German industry. And with new and contemporary products, “made in Germany” will remain competitive in the world.