A measure of IG Metall's clout is the persistent rumor that the European Central Bank has held off on sorely needed interest rate cuts on account of the German trade union's wage demands. Moreover, though, with 2.7 million members, it is the second largest union in Germany, IG Metall serves as the benchmark and the trendsetter to less veteran or less sonorous unions.
Ver.di, the service sector's behemoth union, with 3 million members, waited for IG Metall's regional wage boards to pronounce their sentence before plunging into its own negotiations with employers.
Miraculously, it -- and many other unions -- ended up demanding the very same pay rise, as did the metal-bashers. IG Metall's standing reflects the historical reverence accorded in Germany to the engineering and scientific professions.
IG Metall justified the wage increases it insists on 4 percent to 5 percent -- and the strike Monday in Baden-Wurttemberg by 50,000, out of 3.6 million metalworkers -- by saying that the raises will boost domestic consumption and revive the flagging economy. Some of the extra money will be used to modernize the pay framework agreements and equate the status and the remuneration of blue collar and white-collar workers doing "similar" jobs.
Warning strikes have erupted over the last few weeks. The main employers' federation, Gesamtmetall, threatened the striking employees with lockouts.
Further strikes may be averted. Employers are offering an across-the-board hike of 3.3 percent over the next 15 months and a one-time cash handout of $170 per worker. This is imperceptibly lower than IG Metal's target of 4 percent. IG Metall is likely to buckle down and agree to arbitration or mediation, perhaps by the embattled Chancellor Gerhard Schroeder, though he is reluctant to gamble his political future on the outcome as he did two years ago. A compromise of 3.6 percent is likely, though. As IG Metall knows, many an invincible union perished through bungled strikes.
Moreover, IG Metall's previous strike was in 1995 and it cannot afford to alienate a socialist chancellor who is in the throes of a re-election campaign. Still, it is implausibly threatening to spread the unrest from its stronghold, the southern state of Baden-Wurttemberg, to Berlin and Brandenburg. Ominous mutterings of a repeat of the mythical 6-weeks strike in the spring of 1984 abound.
This reads like a repeat of the wage negotiations in 2000. Then, as now, IG Metall demanded an increase of 5.5 percent as well as a reduction in retirement age to 60 and in the working week to 32 hours. Warning strikes petered out and the union capitulated by accepting a two-year contract with modest pay raises, including 3 percent in 2000 and 2.1 percent in 2001.
The two previous annual wage settlements trailed inflation, expected to reach 2 percent this year. They reflected only a part of the handsome productivity gains throughout German industry. Net profits in IG Metall's sectors climbed from 1 billion deutschemarks in 1993 to 55 billion DM in 2000.
Real unit labor costs tumbled -- but mainly due to massive layoffs. More than 1.5 million workers out of a total of 5 million in 1991 were sacked. IG Metall wants its members to recoup some of their past generosity. In a typical German euphemism, this grab is called a "redistribution component".
Admittedly, German employers abused the union's relative wage restraint during the 1990's. They did not create additional employment, nor did they invest in the retraining and re-qualification of workers made redundant. The union claims that wage moderation fostered the transfer of wealth from labor to capital, in other words from employees to shareholders.
Whatever the outcome of this industrial action, the employers will foot the bill. "Frankfurter Allgemeine" estimates that every day of the strike would translate to $2.3 billion in lost net output. Each 0.1 percent in wage increases costs the metal and electric industries about $140 million a year. This in an industry mired in declining orders and falling production.
IG Metall's Web site is a militant affair. "Right to Strike -- Away with the anti-strike paragraphs!" -it thunders. "Strike is a civil right, lockout is a misuse of power" -- it preaches. It even provides practical "how-to-strike" guides, tips for strikers, and promotes a new model of "flexi-strike."
IG Metall is strict about the universal implementation of the collective agreements it painstakingly negotiates with employers. Such agreements typically tackle not only wage levels but issues like training, reduction in working time, safeguarding jobs, and equating eastern pay with western standards. The comprehensiveness and all-pervasiveness of the collective bargains is Procrustean.
"The Economist" reports the case of Viessmann, a German engineering firm. To avoid shifting the production of a new boiler to the Czech Republic, it negotiated with its workers an increase in the working week without a commensurate pay rise. IG Metall blocked the deal, though it later compromised.
This is a typical story. The collective agreements in 2000 and 2001 were an aberration and a political concession to a socialist regime in trouble. In contrast, wages rose 4.1 percent in workplaces covered by the 1999 settlement with IG Metall -- most of them multinationals who exploited the agreement's egregious terms to squeeze their indigenous Mittelstand suppliers.
IG Metall is notoriously intransigent. Unlike its brethren in other industries, it refuses to link pay rises -- or even annual bonuses -- to profitability, for instance. It rejects the idea of implementing, by mutual consent of employees and employers, wage reductions or overtime to prevent layoffs. It abhors profit sharing schemes, either regional, or sectoral, or even confined to the single plant level. It would not sign two-year pay agreements based on "bad experience" in the past. Many exasperated firms resort to the profligate exercise of "opening (escape) clauses". They renege on the collective agreements without being seen to flout the rules.
Employers ask employees to continue the working day at home after hours. Some workers clock out but continue to work all the same. Other firms -- especially in the east -- opt out of the employers' associations altogether, thus exempting themselves from onerous collective pay agreements.
(Part 2 of this analysis will appear Tuesday.)