Germany’s new legal minimum wage: lessons for the UK and Europe

The TUC’s fantastic touchstone blog produced another marvellous piece this week on Germany’s new legal minimum wage. This change is truly momentous and there are a number of questions this development raises for British and European industrial relations, not least for the construction sector.

Germany’s industrial relations has long been presented in highly stylised, if not romantic, terms. Such celebrations are far from unwarranted. The tarifautonomie model for a long time worked well, even reforming itself to adjust to the 1973 oil crisis that triggered labour market mayhem across the rest of Europe. This ‘pattern bargaining’ model presented a highly coordinated network of trade union and employer organisations whose bargaining encompassed most of the economy due to the pattern setting wage deals reached within a dominant manufacturing sector. It wasn’t only trade unions and the left that looked longing over the North Sea to this ‘model’ with wanting eyes. Many academics too have contributed to this celebration of German tarifautonomie viewing the German example not just as one of institutional best practice for wage-setting but also as central to defining Germany’s social market economy.

The article in the TUC Touchstone blog correctly identifies some important shifts that have occurred in German industrial relations. Some additional detail is provided to this here. The once dominant manufacturing sector in Germany, although still important, is not the largest industry in the country any longer. Like other western European countries its service sector is now predominant in terms of net size. Although the manufacturing sector still holds considerable influence over national wage setting patterns in Germany it is greatly diminished, exemplified by the rise of the giant services sector union Ver.di that’s now almost equal in size (2.2 to 2.3 million members respectively) to the manufacturing union IG Metall that long dominated the union half of the German tarifautonomie model. Ver.di, and its constituent pre-merger unions, have been campaigning for a new legal minimum wage for a long time, in contrast to IG Metall who had repeatedly resisted it. It was the strong support for a legal minimum wage from construction sector union IG BAU that helped tipped the scales, but it was more the frightening developments in German pay that outlined the sharp rise in low pay and pay inequality. This was an issue of particular importance in IG BAU’s own construction sector that has seen pay rates of €5 an hour pay (around £4) or less become widespread in the industry since the fall of the Berlin Wall.

This is where comparison’s with Britain becomes interesting. In one sense it doesn’t matter which western European country you look at; the construction sector has always been ground zero when it comes to poor labour standards. The most egregious abuses of working rights have always occurred here; let’s tick them off: bogus self-employment, health and safety (quite in important when you work with a hard hat), black listing, not observing the minimum wage rates, not observing in-place collective agreements, wage dumping practices through (sub-)contracted labour—all of which you see in construction (uou usually only find some – not all –  of these in other sectors). In Britain’s construction industry we have both collective agreements and a legal national minimum wage (NMW), but the legal supports for wage bargaining are non-existent and for most of the minimum wage’s life legal enforcement were poor.  It is perhaps ironic that legal supports for collective agreements in Germany are better than in Britain given that one has a NMW and one doesn’t, which is why for a long time legal rules providing a minimum rate of pay were, broadly speaking, not necessary there. Many commentators have at times erroneously misunderstood German industrial relations as being somehow deficient in labour standards terms due to its lack of a legal minimum wage. Although it may need one now (and it does), Germany’s broader legal framework that props up collective agreements and its system of works councils still, even now, offers far more for the betterment of worker welfare in comparison to the British model. UK labour law is still heavily skewed toward the rights employers, not employees with statutory attempts to molify the long-standing anti-union, anti-labour law position of the Courts being no more than piecemeal.

The role of transnational sources of law, either from the EU or the ILO, is also important in comparisons between the German experience and our own. Although this discussion is for another day it is worth noting that here in Britain many see EU law is still largely seen as important buttress for working rights, whereas in Germany it is increasingly been seen as a threat, principally due to the Euro-pact plus and the Rüffert case of the ECJ. In an odd way neither are too far wrong, but it’s worth noting firstly that the direction of EU law since the 1990s, which still frames how many Brits view EU law, has changed radically. It is also important to note that many of those things that EU does provide in this area (european works councils, equal pay, TUPE rights, health and safety) would not impress the Germans a great deal as they did a great many protections drawn legal and wage bargaining sources already in place.

Construction is not much of a barometer for the rest of the economy. The degree of fragmentation in terms of constructions work organisation, marked by dense procurement and public contract chains that present a number of corporate actors and a highly segmented labour market, is not found to the same degree in other industries. However, given the potential for the egregious abuses that happen in construction and its important place in British and German economies it is important that lessons are learnt. This becomes more fruitful when these sorts of comparisons are done rather than simply looking to our own experience.

The UK-German comparison and construction sector example above should at least spell out the central and pivotal importance the combined role of legal and collective bargaining institutions in improving the lives of working people. Moreover, the model of sectoral/industry-level collective bargaining that has long defined German industrial relations is far from defunct. In fact, it should be seen as the central pillar to ensuring a labour market than provides decent work and fair pay. With this in mind, the promising proposals by John Hendy and Keith Ewing in an recent IER booklet make clear the importance of collective bargaining as well as prerequisite legal supports.

Andy Morton is doing his PhD in comparative political economy at the University of Leeds with a particular interest in EU law and its impact upon the industrial relations regimes in Britain and Germany. Andy Morton also wrote the review on Hendy and Ewing’s IER booklet Reconstruction after the Crisis in Chartist 266. He is also Chartist’s production and web editor.

http://touchstoneblog.org.uk/2014/04/germanys-minimum-wage-vorsprung-durch-mindestlohn/

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