In Germany, Labor Traditions Hard to Change

It seems like a tiny issue. Sick-pay benefits account for about 1.5 percent of a typical company's labor costs in Germany. Yet even on small issues like this, the battle to make German industry more competitive in world markets has hit speed bumps.

Facing 10 percent unemployment that many experts blame on high labor costs, Chancellor Helmut Kohl fought successfully this year for a 20 percent cut in the pay workers get when they miss work for health reasons. But when labor unions balked at the move, companies sided with tradition, not change.

The all-but-complete failure in recent weeks of the sick-pay change suggests how gradual the reform of German labor and social-welfare policies will be. The experience also shows how much contention and division lie beneath the surface in this historically consensus-oriented society. But reform surely is coming.

Among the reasons:

*German manufacturers have been, in effect, fleeing the country. By one count, 2,000 mid-size companies have invested in the Czech Republic in recent years, for example. Investment within Germany has been flat.

*The country faces requirements to lower its federal budget deficit to 3 percent of total economic output, to comply with the European Union's single-currency plan. That puts a priority on stimulating noninflationary economic growth and cutting social-welfare spending.

*An aging population is projected to require more of worker income to go into pension programs in future years. Pensions will eat up 19 percent of German output by 2035, up from 11 percent today, predicts the Organization for Economic Cooperation and Development, the Paris -based group of rich nations.

Many workers, however, remain unconvinced that the economic problems are as severe as corporations make out

"I often have the feeling that, in the discussion about Germany as a place to do business, the employers, for whatever reason, intentionally represent the situation as worse than it is," says Willi Welteroth, a worker at Fichte and Sachs, a manufacturing firm in Eitorf, near Bonn.

The collapse of the sick-pay change indicates the clout unions retain. At the urging of business, Mr. Kohl pushed through a change cutting sick-pay requirements from 100 percent of base pay to 80 percent. Most workers' sick pay, however, is governed by labor agreement, not statute. Many manufacturers decided that they too would cut sick pay to 80 percent, on the legally questionable grounds that the statutory framework for current contracts had changed.

The result was a series of short-term work stoppages involving hundreds of thousands of employees all over the country. The explosive response was labeled "a hot autumn."

"We had a contract, and that had to stand," says Michail Tsapanidis, a worker at Mannstaedt Werke, another manufacturer near Bonn. He took part in the work stoppages, even though his employer did not make the cut to 80 percent, to show solidarity with employees of firms that had made the change.

In the face of the protests, employers started backing down. In industry after industry, from carmakers to candymakers, companies have been signing new contracts in which full sick pay is explicitly provided for. Thus employers are conceding at the bargaining table a point it took all the chancellor's political might to win them in the parliament.

Given the relatively small amount of money at stake, compared with other possible changes, the loss is not huge for employers. Martin Kannegiesser, president and owner of Herbert Kannegiesser GmbH, a machine manufacturer in Vlotho, says the government tackled sick-pay because the change might come easily rather than trying what would make the most difference.

The nonwage labor costs that really make a difference for employers are the costs for the health, unemployment, and pension-insurance systems - and these really need an overhaul, Mr. Kannegiesser says.

"Our basic wages are still somewhat too high," he continues. "But with reasonable wage settlements over the next two or three years - increases under the rate of inflation - wage costs should be back in line."

For all the attention the sick-pay issue has received, "It's clear that the unions have been rethinking the issues - to a degree that hasn't really registered," Kannegiesser adds. The unions are winning full sick pay, but at the price of wage hikes below inflation and concessions on the traditional Christmas bonuses.

Mr. Welteroth, from his position in the union camp, shares the concern about the insurance systems. He would like to see tighter regulation of the drug industry and the hospitals to control health-care costs. Of the pension system he says, "Too many people have their hands in the pot." And the unemployment-insurance system funds government services that should be paid for out of general tax revenues, he says. (Language training for ethnic Germans arriving from Kazakstan is an oft-cited example.)

Mr. Tsapanidis objects that civil servants and the self-employed do not have to pay into the pension system.