Corp. Extortion Over Minimum Wage In Germany: BMW, Daimler, VW Threaten to Offshore Production

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Germany has neither a minimum wage nor a government. Someday it might have both.

If not, there will be new elections, and Chancellor Angela Merkel might get pummeled because she’d get blamed for them. The CDU/CSU won a phenomenal victory in September, but not an absolute majority. To govern, it must form a coalition. Erstwhile coalition partner, the FDP, got kicked out of parliament. Now Merkel’s clan is negotiating with the left-leaning SPD, runner-up in the elections, to form a Grand Coalition.

They’re horse trading over who gets which ministry, and they’re tearing each other’s hair out over sharing election spoils, and they’re butting heads over legislative projects. Among the SPD’s campaign promises was a general minimum wage. Not a non-subsistence minimum wage, of the kind favored by the US government, but €8.50 ($11.50) per hour.

Fear-mongering over it started to heat up at the end of October when Daimler CEO Dieter Zetsche told the Handelsblatt that imposition of a minimum wage would cost jobs in the long run. It would not hit the automotive industry per se due to its higher wage levels, he said, but the Mittelstand – privately held enterprises that have become world leaders in their niche, at least until the Chinese came along. They’re component suppliers, so higher wages would feed into input costs for automakers. The labor market must remain flexible, Zetsche said. But at the time, he still couldn’t envision moving production from Germany to China.

What a difference three weeks make.

Germany has been accused of becoming a low-wage country. For a reason. Workers – from doctors to cleaning staff – have watched their real wages decline for years. Individual taxes have been jacked up, corporate taxes have been cut. Retail sales are now lower than they were in 1994. It’s not magic. It’s a national policy handed down from government to government like a religious document: exports at any price.

This dependence on exports, and the parallel overexposure to wages in China and elsewhere, “has deprived Germany’s workers of what they have earned, and should be able to save and spend,” US economist Adam Posen writes. “Most importantly, this means they move down the value chain in relative terms, not up.”

But low wages are corporate manna. Hence the fight over minimum wage, with a good dose of corporate extortion.

They did it together during a joint interview published by the Sunday edition of the Bild, the most read paper and tabloid in Germany: the CEOs of Daimler, BMW, VW, und Opel. But it was Daimler’s Zetsche who pulled the ripcord: “If the conditions in Germany continue to get worse, we have to think about the transfer of production to other locations.”

Offshoring to China? For years, they’ve been building plants in China, and it has become their most promising market. China is written between the lines every time a CEO of a German automaker says anything at all.

The auto industry needed to strengthen its competitiveness, not weaken it, Zetsche said. VW CEO Martin Winterkorn agreed; collective bargaining partners should be the ones negotiating wages, not the government. “The principle of collective bargaining autonomy in Germany has been proven,” he said – in light of the real-wage declines that these CEOs are so proud of. And they fretted about the controversy over temporary and contract workers that has been spiraling out of control.

More than one million people work as temporary or contract workers for the metal and electrical industry in Germany, which includes the automakers, the Spiegel reported. Nearly one third of the workers in the industry! In the auto industry, 100,000 temporary workers and 250,000 contract workers (employed by Randstad, Loewe, or other staffing agencies) work alongside 763,000 regular employees.

Manfred Schoch, chairman of BMW’s supervisory board (workers’ council) explained that he was not opposed to contract work per se to keep some flexibility, but “a problem arises when tasks that used to be performed by BMW employees are assigned to other companies whose employees on our premises get half the wages.”

Detlef Wetzel, head of the Industrial Union of Metalworkers (IG-Metall) didn’t mind contract workers in general, he said. But he was against them “when they’re used to massively suppress wages.”

The evil combination of a decent minimum wage and some limitations on temporary and contract work are now on the negotiating table in Berlin. If they make it into law, Zetsche said, “Germany would squander its lead in Europe in terms of competitiveness.” And VW’s Winterkorn opined that it was “reckless to eliminate or limit these instruments of flexibility.”

These “instruments of flexibility” have worked well: record corporate profits, fabulous bonuses for the top echelon, and record trade surpluses. On the other side of the ledger: strung-out workers who cannot afford to spend or save money they’re not making. And the consequences have been documented by a huge, multi-year ECB study.... Total Fiasco: Germans are the Poorest in The Eurozone

But cheap labor wasn’t their only concern. They also complained about the cost of energy, which BMW CEO Norbert Reithofer said was twice as high as in the US. And now, companies may soon lose an exemption from expensive renewable energy surcharges. Business leaders worry this will “destroy Germany’s industrial core.” Read.... German Industry Dreads Getting Slammed By The Costs Of Green Energy