Postcards from Old Europe – Worker’s paradise quo vadis?
The geriatric communist cabal that ran East Germany used to call the country a workers’s paradise. Just too bad that their vision of paradise was a little skewed – but what can one expect from atheists in this regard.
Reunfication brought East Germans into the fold of the former West German welfare state. This wasn’t exactly paradise either, but it was still pretty good. The NY Times sums it up like this:
Germans typically start working later in life than Americans and retire earlier. They work fewer hours each week and have longer vacations. If they lose their jobs, unemployment benefits are higher than in America and can continue indefinitely.
The former German Chancellor Helmut Kohl famously called Germany a collective “amusement park” for workers because of the country’s numerous public holidays and the generous paid vacation workers receive. This comparison is valid in another sense as well – if an amusement park doesn’t continually upgrade its attractions to keep up with changing consumer demands it will become ever more unattractive.
This has happened to Germany over the past couple of years. Short working hours and high labor costs coupled with high taxes and heavy regulation have made companies reluctant to invest in the county. The current government has been trying to implement a whole host of labor market reforms but is facing heavy opposition from a nation that has become used to a tightly woven economic safety net.
One thing is changing however: working hours are slowly increasing. Under Germany’s system of collective wage bargaining working hours were reduced from around 44 hours per week in 1960 to 37.5 hours now. This puts Germany in the bottom third in the European Union. The reduction in working hours was championed by trade unions who assumed that a reduction in time a single employee should work would encourage companies to hire more workers.
This worked – but not in the way the unions intended. Short working hours created extremely high productivity pressure – in other words, the company hat to squeeze much bang out of the wage buck. This pressure proved to be too much for unskilled workers. Their jobs disappeared in Germany and started popping up in countries with lower total labor costs. In many other cases the amount of overtime worked neatly compensated the mandated decrease in regular working hours.
Companies have now pulled the emergency brake. German engineering company Siemens blackmailed its works council into accepting five more working hours per week in exchange for not moving jobs to Hungary. This broke the dam and now ever more companies are confronting unions on the subject of the workweek.
The astonishing thing is that public sentiment has been rather muted towards this pay cut – the economic reform programs are drawing much more criticism. A quick straw poll here at my place of work has confirmed my suspicion that people would prefer to work more for the same amount of money than accept an outright cut in pay.
A longer work week could make hiring people for low skilled manufacturing jobs a more viable proposition than it is today. Calculations show that a return to a 40 hour workweek would cause labor costs to decline by around 10% an average and by about 15% in some industries.
This would be one further step towards reducing unemployment which is hovering around 10%. But it would probably be the beginning of the end for our German amusement park.
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