Germany’s labour pains —Hans-Werner Sinn

Hans-Werner Sinn
Daily Times (ref. Project Syndicate), September 7th, 2007

Today, 40% of German train drivers are still permanent civil servants who have been leased from the state by the privatised railway. But the remaining train drivers’ right to strike is sufficient to threaten Germany with chaos in the transport system

Germany is a country with very few strikes. Whereas the average number of working days lost due to strikes from 2000 to 2004 amounted to 234 per 1,000 employees in Spain, 171 in Canada, and 101 in France, only 3.5 days were lost in Germany. In the OECD’s strike statistics, Germany ranks third from the bottom, ahead of only Poland, with 1.6 lost days, and Japan, with 0.4.

So Germans are all the more disturbed that the train drivers’ union, the GDL, has voted for a nation-wide strike that will paralyse the country. The recently signed wage agreement for all railway employees, negotiated by the rival unions Transnet and GDBA, did not go far enough for the GDL, which is now holding out for a 31% wage hikes.

The strike has been temporarily stopped by a court order, leaving time for negotiations, but the danger remains great because talks have reached an impasse. If the GDL gets a higher wage settlement than achieved in the general wage agreement for all railway workers, the general agreement will become invalid — an outcome that the railway management cannot accept under any conditions.

More importantly, a strike could introduce a paradigm shift in the German labour market for two reasons. First, other privatised state-owned operations, especially postal and telecommunication services, could follow suit. Formerly, these operations could rely on the fact that employees were permanent civil servants (Beamte), a German anomaly.

While German permanent civil servants cannot be fired, nor are they allowed to strike. The status of permanent civil servant, marked by a special reciprocal obligation of loyalty, was created by the Prussian state in order to fill strategically important positions with people who could be fully trusted. Train drivers were the paramount examples of this credo.

With the privatisation of Germany’s railway, which will shortly be concluded with its listing on the stock market, these civil servants will disappear. Today, 40% of German train drivers are still permanent civil servants who have been leased from the state by the privatised railway. But the remaining train drivers’ right to strike is sufficient to threaten Germany with chaos in the transport system.

The threatened strike is also significant because it marks a departure from the German system of industry-wide unions, which negotiate for all employees within an industry regardless of their occupation. The alternative is unions for individual trades within an industry, which usually are aggressive negotiators and tend to demand far more than is economically feasible.

Such unions are common in Anglo-Saxon countries. They were responsible to a great extent for Britain’s economic decline in the 1960’s and 1970’s. Not until Margaret Thatcher broke their power was the country able to breathe freely and renew itself.

There is an economic explanation for why unions based on individual trades are detrimental. Such unions act as monopolies that offer complementary goods. Because the customer is only interested in the total price that he must pay for all goods in a bundle, and since the amount of the purchased units of this bundle is dependent only on the total price, individual sellers are encouraged to ask for particularly high prices. If they raise their prices, they receive the full financial gain, while any loss implied by a decline in demand is distributed among all sellers.

For this reason, the total price that emerges is higher than would have been chosen by a monopoly seller who represents all producers together and who takes into consideration all the mutual disadvantages from any decline in demand.

A monopoly is poison for a market economy, because it increases prices and decreases volume. Even more poisonous is a chain of monopolies offering complementary goods. It increases prices and decreases volumes even more than one comprehensive monopoly incorporating all suppliers in that chain would have done.

This insight can be applied directly to the problem of unions. As a comprehensive monopoly, an industry-wide union achieves higher wages than would be possible under conditions of competition, i.e. without any unions, and consequently increases unemployment. But unions based on trades, which operate largely independently of one another, achieve even higher wages and create even more unemployment — so much so that employees as a whole are much worse off than they would be if an industry-wide union represented them.

The German train drivers’ wage demands demonstrate that the privatisation of former state-owned operations carries considerable risks for Germany’s labour market, because how those demands are resolved will determine whether Germany will move in the direction of unions based on trades. If it does, Germany’s ranking in international strike statistics will rise considerably. —DT-PS

Hans-Werner Sinn is Professor of Economics and Finance, University of Munich, and President of the Ifo Institute

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