Wages in East Germany Adjustment to the West German Level Still Far in the Future

Transcription

1 Wages in East Germany Adjustment to the West German Level Still Far in the Future More than ten years after the start of German monetary, economic and social union, the level of wages in the new Federal Länder is still clearly below that in the former Federal territory. After the initial wage rises, which were rapid and, measured by productivity, excessive, the process of wage adjustment has almost stagnated since the mid-nineties. At present actual earnings of east German workers are a quarter below the west German level. The gap is mainly due to the fact that wages paid in the private sector are increasingly moving away from the collectively agreed rates, as fewer and fewer companies are bound by these agreements. The adjustment of wages to the level in the old Federal Länder differs considerably between sectors. The process is most advanced in financial services and the public services, and in state and semi-state enterprises, while a big gap still remains in the building industry, and in manufacturing. Wage adjustment after the change too rapid The belief that unification would rapidly bring their standard of living up to that in the Federal Republic was a major factor in the demand for German unity by the people in the GDR. Their expectations were encouraged by politicians, and so it is not surprising that huge wage increases were being demanded as early as the spring of They were granted by the GDR Government _ which was then responsible for wage formation _ although economic output was already collapsing. According to information from the GDR Statistical Office, wage increases ranged from 4% in the state administration (from first to second quarter of 1990) to 19% in the housing sector and banking. In industry the rise was 11%, and in most of the other sectors it was more than 10%. Then the employers and the newly formed trade unions took charge of wage formation. This was certainly in conformity with the institutional regulations in the old Federal Länder, but unlike the wage negotiations in the west those in the east were not based on growth in productivity in the economy as a whole; the objective was to bring wages up to the west German level quickly. This was in keeping with general expectations. A survey in November 1990 showed that two-thirds of adults in the new Federal Länder believed that wages and salaries should be determined by the rates paid in west Germany. Only one-quarter held the view that the wage level should be determined by the company's earnings position. 1 Agreements on high wage increases also suited the employers. Their side in the negotiations consisted firstly of representatives of associations in the old Federal Länder, whose member firms did not want to see east German firms competing with them on low wages. Secondly, directors of former state enterprises in east Germany participated on the employers' side, and they were afraid of losing legitimation vis-à-vis their workers. The Federal Government also _ indirectly _ played a part in the negotiations. The wage rates negotiated were initially submitted to it for approval, because as owner of the Treuhand enterprises, other state enterprises, such as the railways and the post office, and state-run facilities it would have to bear most of the costs. The Federal Government gave its approval, probably not least because it had fuelled these expectations earlier and now feared mass emigration. This constellation of interests resulted in a typical moral hazard phenomenon. The consequences of lack of competitiveness and high unemployment were passed on to others, in this case the general public. 2 An additional argument produced for rapid wage rises was the high rate of price increases. The cost of living in east Germany did rise strongly in 1991, after falling in However, the inflation rate was not nearly as high as the wage rises. In July 1991 the gross wage paid to a full-time worker in industry was around DM a month, after east marks in the second quarter of In the second quarter of 1991 the costof-living index was one-fifth above the same quarter of the previous year but gross wages were two-thirds higher. In 1992 the cost of living was just under 14% higher than a year before, while the gross wages and salaries bill per employee was 30% above the previous year's level. This was 62% of the west German figure. Very soon after the transformation, then east German workers were able to mark up an enormous increase in their real incomes. 1 Cf. Elisabeth Noelle-Neumann and Renate Köcher (ed.), Allensbacher Jahrbuch der Demoskopie 1984 _ 1992, Munich, New York, London, Paris, 1993, p Cf. Wolfgang Scheremet, Tarifpolitik in Ostdeutschland: Ausstieg aus dem Lohnverhandlungsmodell der Bundesrepublik Deutschland, in: Beihefte der Konjunkturpolitik, No. 43, 1995, p. 142ff. 219

2 A high degree of adjustment fixed in collective wage agreements... 3 All data from the WSI-Tarifarchiv, ( tarchiv). 4 One example is the metal and electrical industry. However, as many of the member firms could not afford the rapid wage rises the employers' association had to hold further negotiations with the trade unions to slow down the adjustment. Under the current collective agreements for individual sectors and those for large firms, for which special collective agreements are signed in the old Federal Länder as well, wage adjustment is far advanced. However, it must be taken into account that the range of these agreements was greatly reduced during the 1990s. Many of the collective wage agreements provide for full adjustment to the west German level in both monthly wages and hourly rates. This is the case in the iron and steel industry, petroleum processing, the printing industry, the metals and electrical industry in Saxony, confectionery, the retail trade (but not in Mecklenburg-Western Pomerania), paper processing in Saxony-Anhalt, Thuringia and Saxony, the private banking and insurance sector and Deutsche Telekom AG. 3 In some of these sectors big steps in wage adjustment were laid down in framework agreements right at the start of the economic reconstruction process intended to bring basic remuneration up to the west German level within a few years. 4 Wage rates that have moved up very close to the west German level are in the construction industry proper (89.2% adjustment), the semi-state Deutsche Post AG, which pays 97% of the west German basic rates, state-owned Deutsche Bahn AG (the railways), which pays 89%, and the public services (88.5%). The Land of Berlin has been paying its employees in the eastern part of the city the same rates as those in the western part since the mid-nineties. Among the industrial sectors for which collective wage agreements have been signed the chemical industry (84.7%) and the textile industry (wages 83.9%, salaries 72.1%) are at the lower end of the scale. Wage rates at 83% of the basic west German rates were negotiated for the energy and utilities sector. The wage adjustment is even further behind in sectors where the influence of the trade unions is relatively weak. These include hotels and catering (75.3% in Saxony), agriculture (72.3% in Mecklenburg-Western Pomerania) and particularly some of the trades, such as butchery (just under 68% in Saxony) and hairdressing (just under 64% in Saxony). The regulations on weekly working times, holiday entitlements, annual bonuses and wealth-creation benefits have only been brought fully into line with those applying in the old Federal Länder in a few areas covered by collective agreements. 5 In some cases there are very considerable differences between east and west, in particular on weekly working hours; these differences are especially marked in the manufacturing industry....but actual wages are noticeably lower However, the current collective wage agreements do not reflect the actual level of wage adjustment in large areas of the east German economy. The wages actually paid are still far below the west German level. On average last year east German workers earned a gross wage of DM _ which was 76.7% of the wage and salaries bill per person employed in the old Federal Länder (cf. figure 1). Wage adjustment is most advanced in the public and private services sector (92%), where the majority of those employed are covered by the collective agreements for the public services. Wages in mining and financial services have also come close to the rates paid in the old Länder, while areas of the trades and manufacturing still have the biggest gaps, with the gross wages and salaries bill per person employed amounting to only slightly more than two-thirds of the rates paid in the old Federal Länder last year. But wages cannot be compared only by the rates paid per person employed; the hours worked and the jobs performed by the workforces also have to be taken into account. Workers in east Germany are employed for noticeably longer hours than their counterparts in the old Federal Länder. An evaluation based on the data of the German Socio-Economic Panel showed that in 1999 workers in west Germany (using the place of work concept) worked 36.6 hours a week on average, 6 while workers in the new Federal Länder worked 40.9 hours, a good 11% more. This is mainly due to the fact that the share of part-time workers and persons employed for only a few hours a week in the total workforce in the new Federal Länder is much lower than in west Germany, at 14% compared with 21%. Moreover, this group works on average a good 28 hours a week in east Germany but only 19 hours in West Germany. Weekly working time for full-time workers in east Germany is only 4% higher than in the old Federal Länder, at 43.2 hours compared with 41.6 hours. So per hour worked the wage gap between east and west is even bigger than if calculated per person employed: at a rough estimate the 5 They include the private banking and insurance sector and energy and utilities. 6 Persons interviewed for the survey were asked to give their average weekly working time including overtime worked. 220

3 Figure 1 Wages, Productivity and Unit Wage Costs in the Economy as a Whole and in Manufacturing in East Germany = 100 Economy as a whole 1 Productivity 2 Wages paid per person employed Economy as a whole 1 West Germany = 100 Unit wage costs 3 Gross wages and salaries bill per person employed Productivity West Germany = 100 Manufacturing 1 Unit wage costs 3 Gross wages and salaries bill per person employed Productivity East and west Germany both without Berlin. 2 GDP in the economy as a whole or gross value created in manufacturing at current prices per person employed. 3 Wages to persons employed in relation to GDP in the economy as a whole or gross value created in manufacturing at current prices. Sources: Arbeitskreis VGR der Länder; DIW calculations. east German workers earn just under 70% of the west German wage rates. The jobs performed must also be taken into account in comparing wages. The data in the survey on remuneration to full-time workers _ although only available for a few sectors _ give the surprising result that for workers who are performing simple jobs the adjustment to the west German level is generally further advanced than for more highly skilled workers. This is particularly evident for white collar workers (cf. table 1). In some sectors the wages paid to white collar workers on simple jobs come very close to the west German level, and in some sectors they are actually higher. The corresponding information for blue collar workers is only available for the manufacturing sector, and here we have a similar picture (cf. table 2). Important exceptions are mining and printing works and metal production, where the wages of skilled workers are closer to the west German level than the wages of unskilled workers. Altogether the differences in the degree of adjustment between the individual wage groups are smaller for blue collar workers than for white collar workers. In view of the inadequacies of the available data one can only speculate on the reasons why the gap is smaller in the new Federal Länder than in the west, though it may be because skilled workers are available in plenty on the east German labour market. Another astonishing result of an evaluation of the statistics on earnings is that in some sectors the degree of adjustment to the west German level is higher in every individual wage and salary group of white collar workers than for white collar workers as a whole. That can only be due to the fact that the employment structure in the new Federal Länder differs greatly from that in west Germany _ there are many more simple jobs in east Germany, and management jobs account for a relatively low share. That is the case in the banking sector and the insurance sector, and in industry in road vehicle construction, other vehicle construction, communications technology and the manufacture of EDP equipment and components. These are all sectors where plants owned by parent companies domiciled in the old Federal Länder or abroad play a large part. Most of the east German plants have only been assigned subsidiary production functions, while most of the headquarters functions are performed in the west. 7 Thus the lower wages in east Germany are also partly due to a lack of the jobs that are generally described as 'higher quality' and well paid. 7 This confirms the results from earlier data sources, cf. Deutsches Institut für Wirtschaftsforschung, Institut für Weltwirtschaft, Institut für Wirtschaftsforschung Halle: Gesamtwirtschaftliche und unternehmerische Anpassungsfortschritte in Ostdeutschland; brief analysis, in: Institut für Wirtschaftsforschung Halle (ed.), Zehn Jahre Deutsche Einheit, Bilanz und Perspektiven, Conference Report, IWH special issue, No. 2, 2001, p. 14ff. 221

4 222 Table 1 The Degree of Wage Adjustment in East Germany to the West German Level for Full-time White Collar Workers October 2000 All White Collar Workers Wage Group II 1 Wage Group III 2 Wage Group IV 3 Wage Group V 4 Comm. Tech. Comm. Tech. Comm. Tech. Comm. Tech. Comm. Tech. Gross monthly earnings, west Germany = 100 Mining, non-metallic minerals Manufacturing Food, tobacco Textiles Clothing Leather Wood Paper Printing, reproduction Chemicals Manufacture of rubber and plastics products Glass, ceramics, non-metallic minerals processing Metal production and processing Manufacture of metal products Mechanical engineering Manufacture of office machines, data processing equipment and facilities Manufacture of electricity generation, distribution equipment etc Radio, television and communications technology Medical, measurement, control and regulation equipment, optics Manufacture of vehicles and vehicle parts Other vehicle construction Manufacture of furniture, jewellery, toys, etc Trade Vehicle sales and repairs Agencies, wholesale trade Retail trade Banking and insurance Banking Insurance White collar workers with special experience and independent skills in responsible jobs. 2 White collar workers with several years' occupational experience or special skills, who work independently but are not responsible for others. 3 White collar workers doing simple jobs which generally require vocational training. 4 White collar workers in simple jobs that do not require vocational training. Sources: Federal Statistical Office, DIW calculations.

5 Table 2 The Degree of Wage Adjustment in East Germany to West German Rates for Blue Collar Workers October 2000 All workers Wage Group 1 1 Wage Group 2 2 Wage Group 3 3 Gross hourly wages; west Germany = 100 Mining, non-metallic minerals Manufacturing Food, tobacco Textiles Clothing Leather Wood Paper Printing, reproduction Chemicals Manufacture of rubber and plastics products Glass, ceramics, non-metallic minerals processing Metal production and processing Manufacture of metal products Mechanical engineering Manufacture of office machines, data processing equipment and facilities Manufacture of electricity generation, distribution etc. equipment Radio, television and communications technology Medical, measurement, control and regulation equipment, optics Manufacture of vehicles and vehicle parts Other vehicle construction Manufacture of furniture, jewellery, toys, etc Energy and water supplies Construction Blue collar workers with especially difficult, responsible or varied jobs (e.g. skilled workers, masters on hourly rates). 2 Blue collar workers in jobs that require a longer introduction but not general occupational experience. 3 Blue collar workers in unskilled jobs. Sources: Federal Statistical Office; DIW calculations Different trends in individual sectors The big difference between the actual and collectively agreed wages is due to the fact that companies are increasingly moving away from the collectively agreed rates in order to remain operational. This has particularly been the case in production and processing, and here especially in industry. Only in the first phase were the employers' associations and the trade unions responsible for wage negotiations, later the wage trend increasingly moved without them. 8 8 One example is the dispute over the revision of the scaled wage agreement in the metal industry in The member firms of Gesamtmetall urged their association to terminate the agreement negotiated two years earlier, and this provoked a strike. Surveys in east German industrial firms by DIW Berlin 9 have shown that fewer and fewer companies are bound by collective agreements. In the winter of 1993/94 three-quarters of all employees in industry were in companies that belonged to an employers' association that could negotiate collective agreements, but according to the most recent survey, in summer 2000 the figure had dropped to one-quarter (cf. table 3). The share of companies was even lower, with only one-sixth of all industrial companies belonging to such an employers' association. In the winter of 1993/94 the figure was one-third; these were larger firms. This erosion of association membership came about firstly because member firms turned their backs on their associations and secondly _ and for 9 Between and firms were questioned in each of the surveys. 223

6 Table 3 East German Industrial Firms by Membership of an Employers' Association that Negotiates Collective Wage Agreements Summer 2000 Shares in % Employers' associations Workforce Will remain Members May leave Nonmembers In member firms That will remain That may leave In nonmember firms Status Independent firms Owned by west German or foreign firms How created Privatised Treuhand firms Reprivatised Treuhand firms Privately owned before Founded after All firms Memo item: All firms in January in winter 1993/ Sources: Surveys by DIW in summer 2000 and winter 1993/94 and January the greater part _ because young firms generally did not join at all. This means that only a small percentage of firms (15%) pay wages based on a binding collective agreement (cf. figure 2). Another 4% have negotiated special arrangements with the union under existing collective agreements or have negotiated an agreement for their plant. The rest (more than 80%) have made no agreements with trade unions or employers' associations on wage rates for their workforce; however, a considerable number of these have negotiated a plant agreement with their works council or their workforce. Half the firms that do not have a formal wage agreement or that have signed a plant agreement with their workforce or works council do orient to the general level in the collective agreements. The other half pay lower rates. Most of the firms that are bound by a collective agreement keep to it: 89% pay the agreed rates and 8% pay more. However, the trend in the building industry has been different. Here a rapid adjustment to the west German wage level was agreed when the transition period started, although it was not nearly as rapid as in large sections of industry. The rise in wages in the first half of the nineties caused few problems for the building firms, for productivity rose rapidly and with the enormous demand for building work firms could charge prices that enabled them to pay the rapidly rising wages. But with the building boom coming to an end, the picture has changed fundamentally in the last four years. The enormous excess capacities are putting strong pressure on wages, and a growing number of firms are paying below the collectively agreed rates. Even wages below the statutory minimum rates are now no rarity, according to statements by the employers' associations, the trade unions and the authorities. 10 In the public services and the big state and semistate enterprises that have a monopoly position and in some cases, such as the railways, receive high state subsidies, collectively agreed rates are paid. Here wage adjustment is most advanced. Only in financial services is it equally far advanced; clearly the banks and insurance companies in east Germany (most of which are 10 Minimum wage rates were introduced to reduce distortion attributable to competition from foreign workers who could avoid paying social insurance contributions. 224

7 Figure 2 Formal Wage Agreements for East German Industrial Firms Summer 2000 Table 4 Gross Hourly Wages of Male Journeymen in Selected East German Trades in May 2000 Shares in % In DM West Germany = 100 Collective agreement Special arrangements with the trade unions Plant agreement with the trade unions Plant agreement with the works council or workforce No formal agreement Source: Survey by DIW in summer 2000 owned by west German parent companies) can afford to pay relatively high wages. Actual earnings in large parts of the trades also come close to the collectively agreed rates. However, the collectively agreed adjustment of wage rates still has far to go, and the workforces only receive two-thirds of what comparable workers in the old Federal Länder are paid (cf. table 4). Conclusion Share of firms Share of total workforce in firms The transition process in east Germany differs in many respects from the economic restructuring process in other former socialist states. In wage policy, too, east Germany has gone its own way. The main concern has been to bring wages up to the west German level. Even Plumbers, gas and water installers Painters and varnishers Central heating and pipe installers Vehicle mechanics Metal workers Electricians Carpenters Butchers Bakers Sources: Federal Statistical Office; DIW calculations. in the GDR and at the start of the economic change, wage increases were agreed that drastically reduced the competitiveness of the firms. The inevitable consequence was that during the 1990s collective agreements became less and less important in large sections of the east German economy as firms abandoned these in droves. Wage policy, which both sides still regarded as a success in the early nineties, has proved a pyrrhic victory for both the employers' associations and the trade unions. The public services (and some of the state enterprises), on the other hand, are not operating in competition, so that the development in productivity cannot be their criterion for wage settlements. It would be appropriate instead to use the macroeconomic efficiency of east Germany as the orientation guideline. That has not been the case so far in wage negotiations, and wage rates are still determined by the desire to bring them up to the west German level as quickly as possible. This wage policy has two fatal consequences. Firstly, the wage agreements reached in the public sector influence other sectors in the economy, and secondly the municipal and Land authorities in the new Federal Länder are in a very tight financial situation _ partly because the municipalities are still overmanned compared with the west German towns and district authorities. 11 The increase in consumer spending was even 11 Cf. Stefan Bach and Dieter Vesper: Finanzpolitik und Wiedervereinigung _ Bilanz nach 10 Jahren, in: Vierteljahrshefte zur Wirtschaftsforschung, Vol. 67 (2000), No. 2, p

8 more at the expense of the urgently needed expansion of the infrastructure. Hence wage adjustment in the public service should be suspended, and only resumed when the other economic sectors have caught up. Without rapid modernisation of the infrastructure the east German regions will not catch up in the competition for inward investment. Karl Brenke 226