Labor Pains


It wasn’t so long ago that German Chancellor Helmut Kohl was ringing in an “Alliance for Jobs,” with bold predictions that he could cut unemployment in half by 2000 and reduce the crushing cost of German labor. Business people cheered.

How things change. Now Kohl’s Alliance for Jobs is all but forgotten. Unemployment is surging from one postwar record to another, month to month. Organized labor is restive, and those once-happy business people are voicing doubt about Kohl’s continued ability to govern.

What is happening in the land of the economic miracle?

The most recent statistics show that unemployment here jumped to 12.2% in January, a far greater increase than expected. This means 4.66 million people were officially out of work, the most since the Great Depression--and a leap of half a million in a month.


January’s unemployment statistics were the worst evidence yet that while the German economy continues to post modest growth--1.4% for 1996--it is not the kind of growth that creates jobs. On the contrary, with German manufacturing labor costs among the highest in the world, Germany’s exporters--pillars of the economy--have been shifting production abroad to stay competitive.

The Kiel Institute of World Economics found that Germany has created 800,000 new jobless every time it has had a recession in recent years, and these people remained unemployed when the economy rebounded. Some observers fear that if things don’t change, the next recession will increase the ranks of the permanently unemployed to socially intolerable heights.

In recent weeks, Kohl and other politicians have blamed foreigners--at least in part--for soaking up the needed jobs, causing the opposition to charge that Kohl is stoking the xenophobic fires that burned in Germany in the early 1990s. Analysts now say the Bundesbank may choose to cut interest rates, a dramatic step in a country where monetary policy is normally a bulwark against inflation, not an economic spur.

It’s also increasingly possible that Germany will fail to meet the requirements for membership in the forthcoming European currency union--a project dear to the heart of Kohl. The requirements call for member countries to hold their budget deficits to 2.9% of gross domestic product--a tough target now that the government must shell out an additional $2.4 billion to $3 billion in unemployment benefits for every additional 100,000 jobless.


The bad unemployment news came with the Kohl government already in political trouble over attempts to reform Germany’s state-run pension plan and tax code. These overhauls were to have been centerpieces of the Kohl political strategy for 1997. Instead, they have bogged down and triggered destructive infighting within the ranks of Kohl’s own coalition.

With so many problems on the table--and so few clear answers--the unthinkable has started to happen: In the last few weeks, people have begun to speak publicly about an end to the Kohl era.

Much of today’s distress can be traced to April, when Kohl unveiled the Alliance for Jobs program, hailed as a breakthrough in the fight against stagnation and chronic joblessness.

The program was a package of job-benefit cuts and pro-business changes in the labor laws. In exchange, business was expected to create large numbers of new jobs.

A key element was a reduction in guaranteed sick pay. German workers get up to six weeks of sick days at 100% of pay, and business people complain that this leads to an enormous absenteeism rate. Kohl wanted to reduce sick pay to 80% of wages.

Kohl pushed the program through the Bundestag. Giant corporations announced they would implement the law, and they were rewarded with stock-price increases.

But organized labor, which considers getting sick without economic penalty a fundamental component of the German social compact, reacted with outrage. When Daimler tried to be the first German company to cut sick pay, employees responded by refusing to work overtime, calling off unrelated cost-cutting talks, and finally staging a one-day strike, which cost the company about $135 million--more than it expected to save in an entire year by cutting sick pay.

That was the beginning of the end for the Alliance for Jobs. Company after company dropped its plans, and when region-by-region wage talks for 1997 were recently completed, the proposal was nowhere to be found.


Was this refusal to follow through on such change the culprit in January’s high unemployment figures? Business executives say yes; labor leaders say no--and Kohl has been too busy fighting brush fires within his own government lately to say anything more than that he wishes the two sides would cooperate.

For while those events were unfolding in the private sector, Kohl’s ministers were setting to work on bold reforms of this country’s tax and pension systems. The hope was to get the economy in good order in time for national elections in October 1998.

The tax reform was to have been the cornerstone of the Kohl reelection strategy, calling for a slashing of income tax rates to the lowest levels since World War II. Finance Minister Theo Waigel said he would make up for the lost tax revenues by closing loopholes and increasing the taxes paid on pension payouts.

Nothing doing, retorted Labor Minister Norbert Bluem, who had been at work at the same time on a reform of Germany’s pension system. The system is overwhelmed by too many retirees and not enough younger workers to pay for their benefits. Bluem wanted to correct things by lowering payouts, raising contributions and hiking Germany’s 15% value-added tax to 17%.

The conflicting tax and pension proposals have not only angered Waigel and Bluem--two of Germany’s most highly visible officials--but practically everybody else, from organized labor to the junior partner party in Kohl’s coalition, the Free Democrats. Kohl needs their votes to govern.

In the middle of all the bickering, Kohl’s heir apparent, Wolfgang Schaeuble, made a sudden departure from normal practice and began raising the possibility that he would be a willing successor to Kohl, if anyone should want him.

Normally, no one on the disciplined Kohl team ever talks about a post-Kohl future. But in January, Schaeuble, the Christian Democratic parliamentary leader, said in an interview with the weekly magazine Stern that he was “tempted” to try his luck as a chancellor candidate.

No one thinks the loyal Schaeuble would have said such a thing without Kohl’s blessing.


Stern, in turn, printed on its cover a huge photo of a gaunt-looking Schaeuble--partially paralyzed in a 1990 assassination attempt--with the headline, “A Cripple as Chancellor? Yes, The Question Must Be Asked.”


Tough Times

Germany’s unemployment rate hit 12.2% in January, illustrating that more people are out of work in the country than at any time since the Great Depression of the 1930s. Germany’s gross domestic product has been decreasing, adding to fears that the country’s economy is worsening.

Unemployment rate: January 12.2

Gross domestic product, percent change: 1996 1.4

Sources: Datastream, Bank of America World Information Services

Researched by JENNIFER OLDHAM / Los Angeles Times