East Germans Lose Cover Of 'Blanket' Wage Deals

GERMANY is kicking off its blanket. For the time being, at least.

So-called "blanket" wage agreements - a system of centralized collective bargaining that effectively standardizes wages for whole industrial sectors nationwide - has been an essential feature of postwar Germany.

At reunification, the five new states of former East Germany were wrapped under the same blanket as the western states. But the two parts of Germany remain much different job markets - a fact that is daily more evident in this period of postwar record unemployment.

Many enterprises in eastern Germany are quietly opting out of the system - either not joining the employer federations that negotiate with the unions, or simply not paying the wages they have, on paper, committed themselves to. The system is being "stretched" in the west, too.

It's enough to lead economist Karl-Heinz Paqu at the Kiel Institute for the World Economy, in Kiel, to speak of "revolutionary change" in the system, and of "the Americanization of the German labor market through the back door of eastern Germany."

Other economists don't go quite that far but concur that they see a trend in this direction, with the prime examples so far in the east.

Consider CA-Bau Leipzig, an eastern maker of oilfield equipment that was privatized after reunification.

"We found that any cost savings we realized were being eaten up by wage increases," says Gerhard Femppel, former head of the firm's advisory board. "We worked out a deal with the works council [the in-house labor-management body] to cut wages, but then the union complained. And so finally we left the employer federation" - and the blanket-wage system.

The firm went from 1,200 employees before reunification to about 250 today, with what Dr. Femppel estimates to be a 200 percent productivity increase. Sales have fallen by more than 50 percent, but that smaller turnover represents more profit because a higher proportion of sales are of the firm's own production, rather than pass-through of outsourced components.

"The blanket-wage system is still the rule in the west, but in the east there are many exceptions," says Ulrich Taureg of the Rhineland-Westphalian Institute for Economic Research in Essen. Personal-income statistics for the east show individuals' earnings below the nominal standard for their line of work - "a clear minus," Dr. Taureg says.

"It's very hard to quantify," he adds. Abandonment, temporary or otherwise, of a carefully maintained national system and payment of below-contract wages "are things that people don't like to talk about. This is a thorn in the eye of the unions particularly - who are suffering silently for now."

The key problem in eastern Germany, as Dr. Paqu sees it, is a lack of what he calls "networks" or "agglomerations" - specialized industrial communities that generate competitive pressure pushing individuals, and individual firms, to higher performance than they would achieve on their own.

California's Silicon Valley and Michigan's automotive industry, with principal manufacturers and countless supplier firms, are two examples of such communities in the United States. But under the command economy of communist rule, communities such as Halle, once a world center of the chemical industry, were shut off from what Paqu calls the "persistent world market pressure" that keeps an industrial area sharp.

Until eastern Germany develops - or redevelops - these agglomerations, Paqu suggests, it will face downward pressure on wages, high unemployment, or some combination of both.

With relatively low unemployment, it is in the interest of employers to take part in the federations and to work through the system: That's where the skilled workers are. But when unemployment reaches a certain point, "there are a lot of good guys outside the system," Paqu says, and it's to the advantage of employers to pick them up on an American-style open job market. Eastern German unemployment is heavily disguised with retraining programs, subsidies, and the like, but the true rate is 20 to 25 percent, Paqu estimates. "We don't know where the threshold is" at which an open labor market is to the employer's advantage, "but my gut feeling is that we've crossed it."

Economists expect the eastern German situation to right itself over time. Taureg, for instance, estimates that within a year or two, firms will begin to return to the employer federations. Paqu predicts it will be 10 to 15 years before eastern wages - now about 65 percent of the west's - catch up.

Kirsten Wever, an expert on German labor relations at the Radcliffe Public Policy Institute in Cambridge, Mass., says unions are for now turning a blind eye to deviations from wage contracts in eastern Germany "because they're reasonable."