Germany Chose Forced Cooperation, We Chose Right-To-Work Legislation

By: Ivory Bishop

Germany is the fifth largest economy in the world and Europe’s largest.[1]  As the second most populated European nation, Germany has risen from being utterly destroyed in two world wars, followed by a half century of being split into two separate and very different nations, and fifty years as a Cold War flashpoint to become the undisputed economic powerhouse of the European Union.[2]

How has this nation, twice quite literally reduced to ash and rubble, became a leading exporter of “machinery, vehicles, chemicals and household equipment” in an era where developed nations around the globe are steadfastly losing manufacturing business to developing nations with little to no labor standards?[3]  At a time when the mighty US economy is crawling back from the devastating worldwide economic crisis, how is it that German maintains a budget surplus and a highly skilled workforce?[4]

The answer lies in Germany’s labor structure.  Germany’s auto industry builds twice as many cars as its US counterpart yet pays its workers twice as much.[5]  Yet, the German car companies have remained profitable.[6]  This has been attributed to the fact that Germany has “two overlapping sets of institutions” that aim to guarantee German autoworkers high wages and favorable working conditions.[7]

One is the massive IG Metall Union.[8]  This is the German equivalent to the US’s not-so-unimposing United Automobile Workers Union (UAW).[9]  Unlike UAW, IG Metall rarely ever strikes because they have created a number of different ways to resolve conflicts in a way that is acceptable to all parties,[10] the most creative of which is the Works council.  The Works council is a constitutionally mandated mechanism by which German employers must work with employees on matters such as working conditions, operating hours, upward mobility structure and other issues directly concerning day to day work.[11]  Together these institutions force German companies to treat its workers well. The U.S. system has no such mechanism.

It is important to point out that the difference between our beloved US economy and the powerhouse that is the German economy is an issue of policy and not based on some innate superiority of the German nation or some greater work ethic possessed by the German workforce.  The true difference is unfortunately simple: the U.S. economy has responded to the “globalization and outsourcing epidemic” differently and less intelligently than Germany has responded.

It is widely recognized that outsourcing is “epidemic.”[12]  What is not so widely known is that many policy makers in the U.S. blame Unions for the US’s inability to compete with developing economies and in an effort to retain jobs in the U.S., many states have created so-called “right to work” legislation.[13]

Right-to-work legislation, at its heart, says that workers at any particular workplace will not be forced to join a union even if a union is organized at that workplace.[14]  Instead, the worker is entitled to choose whether to join and financially support the union or continue to work, not paying any union dues, yet still benefitting from the union negotiated contracts.[15]  This makes it incredibly difficult for unions to organize since they cannot ensure funding.

If any individual worker can decide not to fund the union, then the average worker is likely to decide not to fund it, deferring the responsibility to the rest of the plant.  As one may imagine, if everyone at the plant, or even a substantial amount of employees at the plant, behaves this way, they are essentially leaving the union unable to fund strikes and other traditional union activities.

Since right-to-work legislation puts so much strain on a union’s ability to organize, states with such legislation have become very attractive to companies that do not wish to deal with the demands and disruptions of a union.[16]  In addition, the absence of an organized workforce makes it easier for companies to pay its workers as little as possible since the workers can’t speak in a collective voice.

For example, Volkswagen (VW) has opened a plant in the right-to-work state of Tennessee in the city of Chattanooga.[17]  According to a company spokesperson, the workers earn between $14.50 and $19.50 per hour.[18]  BMW opened a plant in Spartanburg where it was reported that the workers there earn $15 per hour.[19]

Recall the average pay for US autoworkers, according to the 2013 Bureau of Labor Statistics report, is $28.42 per hour.[20]  If you compare that to the Chattanooga wages, there is a nearly a 30% difference from what the highest paid Chattanooga employee is paid as compared to what the average US autoworker is paid.  This cannot be by accident on the part of the companies who purposely seek out these union-free havens.[21]

In response to this practice of moving plants to states with right-to-work laws where the company can pay significantly less to its workers, plants in other states have been forced to re-negotiate with its unions with the goal of lowering the total compensation its employees receive in order to compete with the right-to-work states’ plants for the presence of those companies.[22]

Kevin Brown calls this phenomenon the “race to the bottom”.[23]  According to this theory, a theory also shared by Professor Daniel Greenwood of Maurice A. Deane School of Law at Hofstra University[24] and other legal scholars, states have an incentive to pass laws to entice corporations to come to their states and forsake all others.[25]

To have such an effect requires laws that have the potential to make the company more profitable by allowing it to cut costs by imposing less regulations than other states, allowing it to pay less taxes than other states demand, allowing it to organize in a way that would let it avoid more tort liability than other states may allow or as applies to right-to-work states, allowing the companies to pay its workers less by making it difficult for unions to organize in those states.

Germany’s mandate that companies form works councils and deal with labor unions, along with the near uniformity of union membership allows Germany to avoid this race-to-the-bottom altogether.  Maybe, just maybe, the US should reassess its response to globalization, take a second look at Germany’s productivity, adopt works councils and make them better.  After all, it is the American way.


[1] The World Factbook, CIA.gov, https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html, (last visited Jan. 11, 2014).

[2] Id.

[3] Id.

[4] Id.

[5] In 2010, 5.5 million cars were produced in Germany. 2.7 million were produced in US. Average compensation was $67.14 per hour in Germany compared to $33.77 per hour in US. Frederick E. Allen, How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much, Forbes, http://www.forbes.com/sites/frederickallen/2011/12/21/germany-builds-twice-as-many-cars-as-the-u-s-while-paying-its-auto-workers-twice-as-much/, (last visited Jan. 11, 2014). However according to the 2013 Bureau of Labor Statistics report, US autoworkers actually have seen their wages decrease to $28.42 per hour. Auto Industry Employment, Wages and Hours, Bureau of Labor Statics, US Department of Labor, BLS.gov, http://www.bls.gov/iag/tgs/iagauto.htm#earnings

[6] In 2010, BMW still earned 3.88 billion Euros, Daimler earned 4.56 billion Euros.

Kevin Brown, A Tale of Two Systems, Remapping Debate, http://www.remappingdebate.org/sites/all/files/A%20tale%20of%20two%20systems.pdf, (last visited Jan. 11, 2014).

 

[7] Id.

[8] Frederick E. Allen, How Germany Builds Twice As Many Cars As The U.S. While Paying Its Workers Twice As Much, Forbes, http://www.forbes.com/sites/frederickallen/2011/12/21/germany-builds-twice-as-many-cars-as-the-u-s-while-paying-its-auto-workers-twice-as-much/, (last visited Jan. 11, 2014)

[9] Id.

[10] Id.

[11] Works Council, Germany Betriebsrat Works Council, Eurofound.europa.eu, www.eurofound.europa.eu/emire/GERMANY/WORKSCOUNCIL-DE.htm; Betriebsverfassungsgesetz, German Works Council Constitution Act, businesslocationcenter.ed, www.businesslocationcenter.de/en/business-location/labor-market/employment-law-and-collective-contracts-system/german-works-council-constitution-act (last visited Nov. 15, 2013)

[12] An Epidemic in Aircraft Maintenance Outsourcing, Transportation Trades Department, AFL-CIO, TTD.org, http://www.ttd.org/policy-statements/statements-archives/2012-statements/an-epidemic-of-aircraft-maintenance-outsourcing/, (last visited Jan. 11, 2014)

[13] Kevin Brown, A Tale of Two Systems, Remapping Debate, http://www.remappingdebate.org/sites/all/files/A%20tale%20of%20two%20systems.pdf, (last visited Jan. 11, 2014).

 

[14] Elizabeth G. Olson, What Right To Work Laws Really Mean, FORTUNE, http://management.fortune.cnn.com/2012/01/31/what-right-to-work-laws-really-mean/, (last visited Jan. 11, 2014).

[15] Id.

[16] AP Exclusive: VW labor boss says UAW vote won’t affect US expansion plans; GOP leaders wary, Canadian Press, http://www.globalpost.com/dispatch/news/the-canadian-press/131115/ap-exclusive-top-volkswagen-labour-official-says-us-expansio.

[17] Chloe Morrison, UAW, IG Metall Circulate Brochure to VW Chattanooga Employees, Nooga.com, www.nooga.com/printme/161789

[18] Kevin Brown, A Tale of Two Systems, Remapping Debate, http://www.remappingdebate.org/sites/all/files/A%20tale%20of%20two%20systems.pdf, (last visited Jan. 11, 2014).

 

[19] Id.

[20] Auto Industry Employment, Wages and Hours, Bureau of Labor Statics, US Department of Labor, BLS.gov, http://www.bls.gov/iag/tgs/iagauto.htm#earnings

 

[21] Sen. Lamar Alexander claimed his state’s passage of the right to work laws were in no small part the reason why Nissan, and VW built plants in his home state of Tennessee. Kevin Brown, A Tale of Two Systems, Remapping Debate, http://www.remappingdebate.org/sites/all/files/A%20tale%20of%20two%20systems.pdf, (last visited Jan. 11, 2014).

[22] Kevin Brown, A Tale of Two Systems, Remapping Debate, 3, http://www.remappingdebate.org/sites/all/files/A%20tale%20of%20two%20systems.pdf, (last visited Jan. 11, 2014).

[23] Id. at 2

[24] See generally, Greenwood, Daniel J.H., Democracy and Delaware: The Mysterious Race to the Top/Bottom. Yale Law and Policy Review, Vol. 23, 381-454, 2005; U of Utah Legal Studies Paper No. 05-09. Available at SSRN: http://ssrn.com/abstract=662261

[25] Id at 384.

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