German Wages War Hots Up

While Volkswagen’s long cold summer trundles on relentlessly there is more news on the wage reduction/increasing hours front.

Following the decision by workers at Siemens and DaimlerChrysler to work longer hours announced earlier in the summer, Volkswagen itself and construction company Bilfinger are looking for similar deals. (The Economist this week has a profile of VW’s head of personnel Peter Hartz – he who gave his name to the Hartz IV law – and a summary of the background to all this).

The numbers of workers likely to be affected are now no longer small: any VW deal would involve 100,000 workers, and the Bilfinger negotiations are said to be liable to affect up to 800,000 construction workers (similar moves are also in evidence elsewhere in Europe, the case of Alitalia pilots being only the most recent).

My take on all this is that while I feel there is an inevitability about it – many EU labour markets clearly need a shake-up – I do not share the rather ‘rosy’ picture most analysts are painting of the likely short and mid term consequences. These deals are clearly deflationary in the classic sense. They will affect consumption in the short, and possibly not so short – term. So when you add the wage reduction effect to the spending reductions implied by the need to reduce government deficits, and the likely 2005 slowdown in global growth which can affect exports, it becomes hard to see where exactly growth in an economy like Germany’s will come from.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".