Wage settlement in engineering sector: Buying flexibility with little extra pay
The benchmark wage agreement in the metal working industry giving a 3% pay rise for 13 months was perceived as victory for the trade union IG Metall. But this assessment seems superficial, since companies achieve some wage setting power, while the short contract lease avoids locking pay rises in excess of long term productivity. Indirectly it is likely to set a trend towards more wage differentiation within the industry as well as across the economy. Also current negotiations in the service sector on working hours point towards a decline in trade union bargaining powers.
Asset conclusions: higher than expected pay rise negative for profitability, but precedent for company specific wage negotiations boosts flexibility – indirectly signals continued out performance of medium sized firms (as indicated by the MDAX over the DAX during the last five years).
© Graham Bishop
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