German 'Wage Cartels' Set For Collapse

The decision by firms such as carmakers BMW AG and Volkswagen AG's Audi unit not to follow behind Daimler-Benz AG in putting the cuts into action defies the advice given by the industry association Gesamtmetall.

This undermining of collective bargaining is seen as the main consequence of moves by carmakers in the last few days to go their own ways in handling huge worker resistence to the cut in benefits.

"Particularly after unfication, there has been a growing feeling that the wage cartels have served the economy badly," said Thomas Mayer, senior economist at Goldman Sachs in Frankfrut.

Mayer said industry associations such as Gesamtmetall had, along with the trade unions, created a de facto cartel that was now proving ineffective in regulating labour markets flooded with an oversupply of workers in former Communist East Germany.

 

In particular, be critised last year's four per cent wage rise in the metal and engineering sector as "disastrous" for German labour markets.

"I don't think that long-term there is anydoubt that these companies will put through the cuts too," said one economist who asked not to be named. But some economists, while accepting that the move towards individual companies negotiating their own wage deals was likely to continue, said the demise of collective bargaining could have some disadvantages for German industry.