Germans Get Flexible to Create New Jobs

In this country today, one of every nine people is out of work. Yet the economy is cruising along at a respectable growth rate of about 3%, and exports last year grew by 12%.

So with a relatively healthy economy--the world’s third largest--why is Germany having such a hard time creating jobs?

It’s an irony rooted in the cautious nature of German industry.

Corporations finding success with their current labor forces are reluctant to hire. Workers, who for decades have enjoyed some of the world’s highest wages, best benefits and tightest job security, are loath to sacrifice any of that to make room for the unemployed.

But with 4.4 million people out of work, the German stereotype of stasis and status quo is getting a kick in the pants--primarily from leaders anxious to return Europe’s biggest country to the glory days of its postwar “economic miracle.”

“Pessimism has become a normal mind-set in our country,” President Roman Herzog admonished Germans in a speech last year. “Those who want to delay or prevent major reforms need to be aware that our nation will pay a high price for this. . . . It will be the unemployed for the most part who will pay.”

With this warning in mind, industries from cars to chemicals have been trying to do things differently, to fell the dinosaur of German labor practices as a way of saving and creating jobs.

Salary cuts. Early retirement. Shorter workweeks. Temporary contracts. Compensatory time instead of overtime pay.

The new catchword is flexibility. And it rolls off the tongues of politicians, union leaders and other potentates seeking a panacea to labor woes, particularly in a national election year in which unemployment is the big issue.

Flexibility only became trendy in the last six months as the election started heating up. But it started about four years ago here in the northern city of Wolfsburg, headquarters for Volkswagen, which kicked off the concept in 1993 with its four-day workweek. Since then, the company that produces one of Germany’s most enduring symbols--”the people’s car”--has become an example of how to cut costs while preserving jobs.

“Volkswagen was the first one to work together: the union, the workers and the bosses. And then the other companies did the same,” says Carola Hunger-Siegler, an auto industry analyst for Commerzbank in Frankfurt.

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Five years ago, Volkswagen had a huge problem. Germany’s economy was sputtering to a stop. Japanese competition was closing in. Car sales had slowed worldwide.

German car makers--from VW to BMW--were looking to streamline. And workers accustomed to lifelong job guarantees faced the heretofore unthinkable prospect of layoffs. Daimler-Benz, the parent company of luxury car maker Mercedes, cut thousands of jobs.

VW didn’t have that option. The state of Lower Saxony, where Wolfsburg is located, owns 20% of Volkswagen. State politicians and union members on the board of directors ensure a “no dismissals” policy that VW had to obey, even as it cut labor costs by 20%.

The answer?

Flexibility.

By threatening to move production to Eastern Europe or Asia, VW’s executives forced the powerful IG Metall metalworkers union to agree to a four-day workweek. All of the company’s 110,000 factory workers in Germany took pay cuts to reflect the shorter hours, but no one lost a job.

Next came early retirement, one-year-only “apprentice” contracts and programs under which workers earn vacation time instead of overtime pay--plans similar to ones introduced later by Mercedes and BMW.

Spurred by an increase in auto sales in Europe and the United States, the German car companies managed to add 25,000 jobs in 1997. Many of them were temporary. And the number was modest compared to the 200,000 industry jobs lost since 1993. But it was still some of the first new employment the country had seen in five years.

Of those jobs, 19,000 were at Volkswagen.

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The Volkswagen story may not sound like much in the United States, but it amounts to a labor revolution in Germany. The very union that fought the four-day workweek now praises VW’s efforts.

“Volkswagen set a good example,” says IG Metall spokesman Claus Eilrich, whose union wants the government to order a 32-hour workweek for all industry to create jobs. The unemployed themselves, who have been protesting once a month since January, want a 35-hour workweek.

Flexibility also is in place in the chemical industry, but more as a way of saving than creating jobs.

Hit hard by Germany’s recession in 1991 and by global competition, chemical firms are only now recovering. Job cuts--mostly through attrition--slowed to 2% in 1997.

Last summer, the industry proudly introduced what it calls a “flexibility corridor,” allowing companies to adjust production and wages to meet demand, but within the limits of a 35- to 40-hour workweek. Another union agreement last year: Individual firms can make deals with workers to trim pay as much as 10% to preserve jobs.

Germany’s jobs-for-life policy is still strong, which is why industries are reluctant to hire workers in good times for fear of being stuck with them in bad. It’s a dilemma unheard of in the United States, where a thriving economy generated 14 million new jobs last year.

“To employ people in Germany means more than in the United States,” says Burkhard Jahn, press spokesman for the German Chemical Employers Assn. “You employ people for longer because it’s harder to dismiss them. So you have to be cautious. You have to know what your demand is going to be in the future.”

And who can know that?

The German auto industry saw an export surge of at least 25% last year, which called for new hiring. But of the 25,000 new jobs, about 60% are one-year-only contracts, which safeguard against a bloated work force if demand declines.

Job security and high labor costs are two reasons for Germany’s unemployment problem. Foreign companies are reluctant to invest here, and German firms have moved production to labor-cheap factories in Eastern Europe, Latin America and Asia.

Small business start-ups, which account for many new jobs in the United States, are a far trickier prospect in Germany because of discouraging red tape and strict financial requirements. As a result, many Germans look to big industry for work rather than branching out on their own.

Still another factor in the high jobless rate is ever-improving technology, which allows factories to run with fewer workers.

Volkswagen, for example, has trimmed production time for efficiency. The new generation Golf IV, available this year, can be manufactured in 20 hours, compared to 32 hours for the previous model.

“The fact is, the economy works more efficiently with fewer people,” says Ulrich Zachert, a professor of labor law at Hamburg University.

For this reason, he and others warn that the auto industry’s job-creation momentum cannot last. IG Metall predicts Germany could lose as many as 200,000 jobs to improved technology over the next five years.

Late last year, the president of the German Automobile Industry Assn., Bernd Gottschalk, praised car makers for creating jobs. He also admitted that the proportion of temporary contracts shows “how thin the ice of additional employment still is.”

But on the floor of VW’s flagship factory, a red-brick behemoth in the center of Wolfsburg, the labor situation looks stable enough. Managers zip around on tiny bicycles, and assembly-line workers assemble the 1998 VW Golf.

On the surface, it’s a stereotypical scene of the old German pluck and diligence. Underneath, it’s about flexibility.

“A job for one year is better than no job at all,” says Thomas Krueger, a temporary worker on the assembly line of the new Golf.