Organized Labour Under an Organized System: An Introduction to Sectoral Bargaining in Germany

The German experience with sectoral bargaining should remind worker advocates that legislative reform is not a quick fix to the erosion of trade union power.

May 7, 2021

10-minute read

Canadian labour history can sometimes appear trapped between the dramatic rise and fall of the American labour movement and the tragic erosion of European trade union power; never quite reaching the heights of militancy nor the crippling defeats facing American unions. But, also, never achieving the institutional influence enjoyed by unions in Europe.

Unlike in the United States, Canada’s overall union density has long been troubling but never quite disastrous. After reaching a high-water mark of 37.9% in 1984, there has been a steady decline in the number of unionized workers in Canada. Still, since 1999 the unionization rate has held steady at just under 30%.

Source: Statistics Canada, The Daily “Unionization rates falling” (2015) & Statistics Canada, CANSIM 282-0223 “Union Status by Industry” (2021).1

Declines in the private-sector, where union membership has fallen from over a quarter (26%) in 1984 to around one-in-seven (14.3%) by 2020, have been offset by gains in the public sector, where union density has gradually risen from 69.8% in 1997 to nearly 75% in 2020.

Source: Richard Littlemore, The Globe and Mail “Do unions have a future” (2013) & Statistics Canada, CANSIM 282-0223 “Union Status by Industry” (2021).2

Even with the 8th highest union density in the OECD, the Canadian labour movement has been hard-pressed to convert this working-class currency into political or economic change. Unions in Canada have been unable to secure a more comprehensive welfare state, ranking below the OECD average in public social spending, or to extend union bargaining power across the broader economy. Comparatively, collective bargaining coverage, on average, extends to 80% of the national workforce in Western Europe.3

One answer to this deficit of worker power is to reform our industrial relations system to make it easier to organize workers and collectively bargain. A proposal that is always on the table, but never on the agenda, is a shift from firm-level bargaining to sector-level bargaining. Rather than unions negotiating collective agreements with employers one by one, the agreements would cover multiple employers in an industry or sector.

Trade unionists and worker advocates have submitted various proposals to this effect over the years. Recent submissions made by the United Steelworkers and Unifor to Ontario’s Changing Workplaces Review (2015) advocated for this in the form of “broader-based bargaining.” The idea was also floated during recent reviews of provincial labour legislation in British Columbia and Alberta. At the federal level, the expert panel reviewing the Canadian labour code hinted at the “possibility of sectoral approaches” after receiving consultation submissions to that effect.

Proposals of this nature, especially those inspired by European examples of industrial relations, are sometimes difficult to imagine because of how enormous a departure they are from our way of doing things.4 By the same token, scholars are often uncritical in their desire to simply import a solution and overlook the fact that industrial relations systems are dynamic, under enormous pressure domestically, and the result of class struggle and compromise in particular places and times. Still, it is a telling exercise to explore what sectoral bargaining looks like in practice. Germany’s industrial relations regime, held up as an archetype of sectoral bargaining, offers exactly this critical example.5

Germany is often heralded as an economic marvel, but what is missed by the business press headlines is the extraordinary degree of union involvement in the economy.

The German context

Germany is often heralded as an economic marvel, but what is missed by the business press headlines is the extraordinary degree of union involvement in the economy.

Through collective bargaining, board-level co-determination, and local works councils, unions set wages across the economy, sit on company boards, and even co-manage the shop floor. In the words of Stephen J. Silva, an American industrial relations scholar, “German industrial relations institutions extend into the boardrooms, workplaces, and government to a degree that is unimaginable in most other countries."6

The context of German industrial relations begins, as most things in Germany do, in “hour zero” of the post-war period. Exhausted and traumatized by the tumultuous inter-war and fascist era, labour and business both sought autonomy from the state and shunned class conflict in favour of a more apolitical relationship, now known as Sozialpartnerschaft, or social partnership.

The post-war German state quickly moved to secure the legal framework for this autonomous bargaining by constitutionally guaranteeing under, Article 9: The Freedom of Association, the right of workers to organize trade unions and managers to form employer associations. Later, jurisprudence enshrined the inverse: no one shall be compelled into association and union benefits shall not be secured only for union members. Effectively, this closed the door on the closed-shop model of mandatory union membership in unionized workplaces.

Collective bargaining in Germany

Collective bargaining is set out in the Collective Agreements Act of 1949, which lays the groundwork for voluntary sectoral bargaining.7

Collective agreements are negotiated in each sector between the employer’s association and that sector’s leading union.8 These agreements determine compensation, among other things, for a majority of German workers, but extraordinary variation exists between sectors as coverage is based on each firm’s voluntary membership in an employer association.

According to 2018 figures, 46% of workers are covered under sector-level agreements, 8% under company-level agreements, and 23% under contracts in which the employer professes to use the sectoral agreement as a reference point.9

Source: Thorsten Schulten and the WSI-Tarifarchive. “Collective Bargaining in Germany 2019: Annual Report of the WSI Collective Agreement Archive.” (February 2020).

While some sectors, such as banking, are organized through national agreements, the cornerstone of the German system is a series of regional agreements that divide each sector into geographic bargaining districts. Formally, negotiations take place in each individual regional district, but in practice the unions engage in pattern bargaining. They identify a ‘pilot’ district where they hold the most bargaining power and work to negotiate a model agreement.10 This is fairly effective in setting a national sectoral standard as employers and unions are committed to limiting differences in labour costs.11 Yet management has retained the right to improve compensation and benefit packages “unilaterally above the rates (but not below) spelled out in a region wide collective agreement” and meaningful wage differentials persist.

Co-determination in the boardroom

The industrial relations regime in Germany extends beyond collective bargaining into a specific framework for industrial democracy called Mitbestimmung, or co-determination.

Under the Codetermination Act of 1976 and the One-third Participation Act of 2004, firms of a certain size are required to have worker representatives on their corporate supervisory board. The supervisory boards—distinct from the management board, which is composed of corporate executives and chaired by the CEO—are made up of shareholders and employee representatives who scrutinize firm strategy, performance, and hold the right to appoint and dismiss the management board.

The number of worker representatives ranges from one-third to one-half, depending on the size and structure of the firm. Generally, employee representatives make up one-third of the board for companies between 500 and 2,000 staff and one-half for companies over 2,000 staff or limited liability corporations with more than 500 staff. The worker representatives—except in the coal, steel, and iron sectors—never constitute a majority on the supervisory board since the chair is elected by shareholders and holds the tie-breaking vote.12

The worker representatives are directly elected by the workforce but again, depending on the firm, the process looks different. In mid-sized firms (500 to 2,000 staff) most, if not all, must be directly employed by the company. In larger firms (over 2,000 staff) some employee representatives are instead union officials.

Even with a legislative framework amenable to union organizing and economic involvement, Germany is no worker utopia.

Worker democracy on the shop floor

Co-determination also takes place at the workplace through Betriebsräte or works councils. Under the Works Constitution Act of 1972, workers have the right to initiate plant-level, worker-only committees in private-sector workplaces with at least five employees.13 

Understandably, they are more common in larger workplaces—of firms with more than 500 employees, about 90%, have a works council. Still, as of 2018 only 9-10% of all eligible workplaces had a works council and 35-42% of all employees were covered.14 

The works council is endowed with a wide range of rights in regards to information, consultation, and decision-making (including the right to veto certain decisions) and is able to exert influence on working conditions, pay, and human resources. For instance, the works council must be consulted (and often sign-off) on “planned changes, like cut-backs, closure, or the introduction of new work methods, which may produce major disadvantages for the workforce.”

This local body is also able to enter into plant-level agreements, or “workplace agreements”, to supplement collective agreement language where it is appropriate. This flexibility has also given way to a troubling trend of “opening” or “hardship” clauses, which allow for deviations below the collective agreement minimum under certain conditions, such as acceptance by worker representatives. Research from 2011 shows that when they were present, they were frequently used: “Overall, 59% of workplaces, whose agreements included opening clauses on pay, said that they had used them.”

Trade unions, whose participation is not legislatively enshrined at the works council level, are pivotal in supporting and staffing these works councils. Around three-quarters of elected councillors are union members affiliated with the German Trade Union Confederation (DGB).

No utopias

Even with a legislative framework amenable to union organizing and economic involvement, Germany is no worker utopia.

While it has one of the highest labour costs per hour at US$42.00 (compare that with Canada’s US$26.27), it also has one of the biggest low-wage sectors in Europe, according to research by the German Institute for Economic Research.15 This paradox is explained by the divergence, or “dualism”, in the German labour market based on sector and collective agreement coverage. One notable example is the 20% difference in labour costs between private services and the prestigious German manufacturing sector.

Observers blame much of this wage inequality on the decline in bargaining coverage, especially in certain sectors. On average, workers who are not covered by a collective agreement work “one hour longer each week and are paid 22 per cent less.” Even after factoring in differences like firm size and sector, workers with no coverage work “52 minutes longer each week and [face] a 10% pay gap.”

The German experience with sectoral bargaining should remind worker advocates that legislative reform is not a quick fix to the erosion of trade union power. Instead, each industrial relations system offers a series of trade-offs.

Like many other industrial relations regimes around the world, Germany is facing continual erosion of coverage. Rather than traditional union-busting as we know it, German employers have engaged in different tactics: fleeing their employer associations, refusing collective agreement coverage, or using local works council agreements to undercut sectoral standards. Coverage of the pivotal industry-level agreements has fallen from 70% in 1996 to 46% by 2018. In certain sectors, like financial services (91%) and the metal sector (67%), most workers are still covered by sectoral agreements, but in retail trade (28%), hotels and restaurants (23%) and IT-services (15%) coverage is becoming functional non-existent.

The institutional stability of the Sozialpartnerschaft has done little to stem the decline in union membership in Germany, which stood at just 17% in 2016—over 10 percentage points lower than Canada’s in the same year. While this mirrors a global decline in union membership, scholars blame the decline on the disappearance of trade unionism as a social custom rather than the result of industrial restructuring (Germany retains 18.9% of its workforce in manufacturing).16

The German experience with sectoral bargaining should remind worker advocates that legislative reform is not a quick fix to the erosion of trade union power. Instead, each industrial relations system offers a series of trade-offs. Broader-based bargaining boosted collective agreement coverage, raised living standards, and may offer lessons for key sectors. But institutional security was also a curse, enabling bureaucratic complacency and inoculation from membership decline while unions continued to comfortably bargain. Similarly, the social partnership enabled unprecedented gains when unions were strong, but it gave employers the flexibility to undermine the system in the long run.

The unfortunate reality for those who wish to re-organize Canadian workers and re-energize the labour movement is: there are no shortcuts to organizing for power.17 Each system has benefits and drawbacks, and the German model has its fair share of both.

A special thank you is reserved for Julian Brummer, who expounded the intricacies of German industrial relations over many beverage-based conversations, and to Anke Hassel, a leading public policy professor at the Hertie School in Berlin and a former research director at the Hans Böckler Foundation, who was exceptionally gracious with her spare time and gave me a master class on the German model

References

1Figures up to 2014 are drawn from Statistics Canada’s the Daily and figures after 2014 are found in the cited Cansim table.
2
1984 figures are drawn from the Globe and Mail article and the 1984 public sector rate is described as “mid-80s” not 1984 per se.
3
The calculation is an unweighted average, using the most recently available data (2014-2017) from the linked OECD Report, of Denmark, Sweden, Norway, Finland, Germany, Austria, Netherlands, Belgium, Luxembourg, Switzerland, France, Italy, Portugal, and Spain. Notable omissions are the British Isles, Iceland, and Greece.
4
Keeping in mind there are domestic appearances of broader-based bargaining such as some forms of public-sector bargaining or bargaining in the construction sector.
5
I think it is fair to compare Germany and Canada, as they share some essential features: a federal system, strong subnational governments, reliance on exports, and the importance of goods-producing sectors. It would be difficult to imagine the more politicized Southern European systems or hyper-centralized Scandinavian models taking root here.
6
I draw extensively on Stephen J. Silva’s 2013 book, Holding up the Shop, an intensive investigation of German industrial relations.
7
For a few difficult, mostly low-cost service sectors, the federal Ministry of Labour and Social Affairs uses regulations on foreign workers, The Posted Workers Act, and a regulatory standard-setting system that is similar in nature to the Quebec government’s power to decree labour standards.
8
There has been an increasing difficulty defining who is capable of bargaining. A problem spearheaded by small occupational unions and recently responded to through legislation and court decisions.
9
For other sources, please see the European Trade Union Institute’s website: worker-participation.eu
10
For instance, the most worker-friendly agreements are typically set in the metal sector in Baden Württemberg or North-Rhine Westphalia or in Volkswagen factories in Lower Saxony.
11
The notable exception is the lower compensation rates and working time requirements in the “new states” in Eastern Germany, which the labour movement continues to fight.
12
The notable exception is the lower compensation rates and working time requirements in the “new states” in Eastern Germany, which the labour movement continues to fight.
13
Similar systems exist for public sector staff and exemptions are made for sectors like the military and church.
14
The variation is due to the differences in coverage in West and East Germany.
15
Labour cost is not perfectly analogous to earnings, as it includes other costs incurred by the employer, such as social security expenditures or training. However, much of this is still of benefit to the employee. Average hourly wages are narrower but still significant.
16
Reunification and disastrous unemployment in Eastern Germany are also explanations, but Anke Hassel and Stephen J. Silva convincingly argue otherwise.
17
I would be deeply remiss in not remarking that I am inspired here by the title of Jane McAlevey’s 2016 book, No Shortcuts: Organizing for Power.

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