Dr. Silke Bothfeld

Labour Market Institutions in GERMANY: Current Status and ongoing Reforms

Paper prepared for the conference “The Social State in Armenia”, organised in cooperation of the DAAD and the CRRC Yerewan,

24.-26th February 2006 in Tsahkazdor/Armenia

Dr. Silke BothfeldEconomic and Social Research Institute

Hans-Böckler-Foundation, Düsseldorf

Dr. Silke Bothfeld

Structure

I. Introduction

II. Three main areas of labour market regulation including ongoing reforms

1. Labour Law

2. Collective Bargaining

3. Active & Passive Labour Market Policies

III. Summary1. Driving forces

2. Unsolved questions

Dr. Silke Bothfeld

I. Introduction

ProblemHigh and rising unemployment despite good economic

performance

Question How to characterise and how to explain recent labour

market reforms?

Hypothesis The German institutional model becomes more

heterogenous and show tendencies of erosion but does not follow to a unitary model

Dr. Silke Bothfeld

I. Standardised Unemployment Rates

Standardized Unemployment Rates in selected OECD-countries 1986-2004

0

2

4

6

8

10

12

14

16

18

20

22

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Germany2 Japan Poland Switzerland United States Euro area Total OECD

Dr. Silke Bothfeld

II. Three areas of labour market institutions – basic principles

Labour Law Relative high social protection & democratic

participation on company level

Collective bargaining Centralised wage-setting system as guarantee for

sustainable development of wages

Labour Market Policy Maintenance and support of high quality labour supply

Dr. Silke Bothfeld

II. Labour Law: Contradictory changes

Dismissal protection: Deregulation

Working-time Regulation: Mixed perspective

Co-Determination: Enhancement of employees participation

Sick pay: Symbolic battle

Parental leave: Fundamental adjustments

Dr. Silke Bothfeld

II. Labour Law: Coverage by works councils

Table 1: Companies and employees with works councils in Germany by firm size, 1998 and 2002 – Percentage on all companies/employees(1)

company size all companies

5 - 50 employees

51 - 100 employees

101 - 199 employees

200 - 500 employees

> 500 employees

companies with work councils as % of all companies

1998 10 6 46 74 84 92

2002 11 7 45 72 85 95

Employees in companies with work councils - as % of all empl.

1998 48 11 48 75 85 95

2002 48 12 46 73 86 96

(1) private sector with at least five employees excluding agriculture and charitable organisations. Source: IAB-firm panel ( 6th and 10th wave for West Germany and 3rd and 7th wave for East Germany).

Dr. Silke Bothfeld

II. Labour Law: Effects on Gender relations

Figure 1 – Employment rates of men and women with at least one child of under three years of age in the EU countries, 2003

0

10

20

30

40

50

60

70

80

90

100

HU CZ SK EE LV EL PL ES IT UK DE FI EU-25

FR LU BE CY NL DK AT LT PT SI

women men

Dr. Silke Bothfeld

II. Collective bargaining: Core element of labour market regulation

The three forms and levels of regulation within the German system of collective bargaining

Regulating body

Object of regulation Examples

Working time Pay Law Parliament (all) companies, (all)

employees

Act on working time (6x8 hours per week, up to 60

hours exceptionally)

No minimum wage legislation

Collective agreement (TV) (sectors/regions/

company)

Regional unit of trade union and employers’ fe-

de-ration/company management

AVE: state ministry of

labour

Working conditions and pay in all

companies that belong to a sectoral or

regional employers’ association or: All

companies of a sector and region if TV is

extended

35-40 hours of contractual weekly

working hours (excluding overtime

work)

Pay levels and nominal amounts

(agreements running for 1-2 years); special

benefits (leave pay, Christmas pay)

Company level agreement

(Betriebsverein-barungen)

Company

management and works

council

Employees and Management of

concluding company

Working time reduction, working time arrangement, compensation for

working time reduction

Possible supplements,

esp. supplements to special benefits

Dr. Silke Bothfeld

II. Collective bargaining: Coverage by collective agreements

61

41

7

12

16

23

16

25

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Western Germany Eastern Germany

Sectoral agreement

company level agreement

orientation on collective agreement

No collective agreement at all

Dr. Silke Bothfeld

II. Collective Bargaining: Tendencies of Erosion?

„Controlled decentralisation“ of collective bargaining by use of opening clauses

Decrease in trade union membership: From 11,8 in 1991 to 6,8 Million members 2005; membership rate of 20% in 2005

Increase in share of low-wage-earners and increasing wage dispersion

Dr. Silke Bothfeld

II. Labour Market Policy: The Activation Strategy

Economic rationale:

To increase effectiveness of expenditure (budget containment)

Avoid „poverty trap“ (eliminate negative incentives for transitions into paid employment)

Political rationale

To avoid „free-riding“ behaviour and misuse of social benefits

Public responsibility for the provision of more effective instruments for re-integration into paid employment

Assumption about causes for unemployment (individual/ structural)

Assumption about economic and social behaviour of citizens

Dr. Silke Bothfeld

II. Active Labour Market Policy: Policy Mix

Further Training and Qualificationcuts in expenditure for training measures & reorganisation of training sectorincreasing mismatch?

Promotion of non-standard forms of employmentderegulation of mini-jobs, promotion of self-employment and development of marginal social employmentsubstitution of standard employment & pressure on wage bargaining

Enhancement of consultancy and placementsystematic institutionalisation of private placement agencies & Re-organisation intensification of placement service for l.t.u.e. quicker re-integration into paid employment?

Dr. Silke Bothfeld

II. Unemployment Insurance: Paradigmatic change

Stronger obligations for recipients- early registration; stricter criteria for employments that unemployed must accept Increasing pressure on unemployed to take up employment

Cuts in benefitsreduction of benefit duration for unemployment benefit; for l.t.u.e. wage replacement benefit is reduced to flat-rate benefit Partly dramatic decrease in life standard for l.t.u.e.

Merger of system of unemployment & social assistanceintegration of former social assistance recipients into labour promotion measures; stricter account of household income & assets; sticter obligation to accept marginal employments Increase in perception of social insecurity & increasing pressure to take up any employment

Dr. Silke Bothfeld

III. Summary: Different speed of change in the three areas & its driving forces

The driving forces of institutional change within the German employment system

Labour law Collective bargaining Labour market policy Government projects and initiatives

Since mid eighties: continuous activities

Debated but not realised

Minor reforms since 1969, major reforms since 2002

Social behaviour/ changing practices

strong micro economic assumptions on companies’ and unemployed persons’ behaviour, gradual adjustment to changes in women’s employment orientation

Controlled and uncontrolled decentralisation Erosion by decrease in membership on both sides

Assumption of massive misuse of social benefits but no supporting data;

Supra/ International regulation and policy-making

EU-law requires compliance of national legislation OECD-job study supports de-regulation, EU supports “flexicurity” strategy

Sceptical view of centralised bargaining systems

Massive (discoursive) support of activation strategy, strong criticism of the obvious inefficiency of labour market expenditure

Dr. Silke Bothfeld

III. Outlook: Remaining questions

What will the regular employment status be like?

Adjusted standard, maintenances of present regular employment standard or no standard at all?

What level of social security do we need?

Basic provision, maintenance of principles of equivalence and solidarity, or generous universal benefits?

How can social standards be defined and social policy programmes be formulated in future?

Scientific based & technocratic (closed-shop) commissions, „old“ neo-corporatist decision making or new forms of social participation & democracy