German unions seek long-term benefit in a changing jobs world

Stewart Fleming finds the annual pay talks hold special significance this time

EUROPE'S most powerful trade union, the 2.8 million strong IG Metall, is gearing up for its annual trial of strength with the employers in Germany's engineering industry.

It is a face-off which pitches this pillar of the "social market" economy into a head-to-head conflict with thousands of medium-sized firms as well as giants such as Volkswagen and troubled DaimlerChrysler.

Traditionally the union's annual pay demand has set the pace for other sectors.

Some economists, Elga Bartch of Morgan Stanley for example, have predicted that even though unemployment is surging back towards four million as Germany plunges into recession, the union could still decide at its board meeting on 10 December to open its bidding with a call for an inflation busting 5% or 6% rise.

Such a demand would trigger a brutal confrontation with employers' association Gesamtmetall.

But many of the union's leaders, especially those who favour big increases in contract flexibility not wages, are anxious to avoid such an outcome. Even though last year's settlement meant that workers ended up with a rise of less than the going rate of inflation they are pressing for another modest increase. And within a divided union leadership they are winning support.

For much more is at stake than just the benefits package for members of IG Metall.

Since 1991, union membership in Germany has plunged from 11.8 million to fewer than eight million. The proportion of workers covered by collective bargaining agreements is also fast declining. Even IG Metall has seen its membership shrink, its finances come under pressure and efforts to recruit in "new economy" sectors fail.

In the former East Germany in particular, droves of employers have been ducking out of the national collective bargaining system in order to try and reduce labour costs. Many firms have been locating plants abroad to avoid the most generous pay and conditions packages on the planet.

Structural economic changes, such as the decline in manufacturing employment and the growth of smaller non-unionised firms, cannot alone explain the decline in union membership.

Young people and women are heavily underrepresented in trade union ranks, put off joining by the union's tradition-bound, male- dominated culture and inability to adapt to their changingneeds. Public and political support for unions has also eroded.

In the face of these threats and the challenge which globalisation poses for the "Rheinish" consensus-based model of industrial relations, Germany's unions are embracing change.

Out of weakness, five of the biggest service sector unions are about to merge into a monolith christened VERDI. And at IG Metall, internal battles over strategy have erupted between what could be seen here as "old Labour" traditionalists and "modernisers".

The former led by Jrgen Peters, the union's vice-President and therefore the frontrunner to succeed Klaus Zwickel as the IG Metall- boss, believe part of the union's role is to help to redistribute wealth towards the workers.

They also see bigger wage rises as helping boost demand in the economy. But "modernisers", who place more emphasis on the need to increase flexibility to adjust to global competition, are gaining influence. Zwickel himself has cautiously backed reform.

But, as the economy slows, unemployment rises and Chancellor Gerhard Schrder becomes more uncomfortable about the background to his - still excellent - prospects of re-election next year, the union will see the pressures for greater labour market flexibility intensifying, from the government and from employers.

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