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.