German labour and its Flexibility

Labour flexibility: an overview of features and developments with the German model

Many scholars cite the Digital Age shift as the main precursor involved in the increasing push towards more flexibility within economic models, not only Germany, but on a global level. The reduction in jobs involving manufacturing and the service sector has been one of the primary impetuses towards the removal of social protection methods from within the labor sector. Present day economists turn a kind eye towards the concept of “flexibility,” citing such successful economies as that of the United States and the U.K as exemplifying the course of action for other free-market nations.

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This prevalent concept of flexibility, oriented towards cost and efficiency concerns, has spurred other European nations to begin plans for adapting labour flexibility models. Germany, a nation often criticized for its weak labour market and general lack of flexibility, represents an interesting mix model for flexibility within the context of a more conservative labour model, which will be explored in depth in this paper, giving a general introduction, outline of characters and features of the model, as well as some case studies of micro level causalities and deeper structures within flexibility models of Germany.

In 1995, amid an environment of high unemployment, Chancellor Helmut Kohl attempted to further international competitiveness through the promotion of labour flexibility geared towards employer benefits. Labor leaders agreed to sacrifice demands on pay in order to receive promises for greater job security. This represented a huge shift within the collective psychology of German labour relations; a symbolic move away from Germany’s pervading insistence for less hours and equal pay.

In March of 2003, German labour chancellor, Gherard Schroeder, released “Agenda 2010,” one of the biggest paradigm shifts for labour program and welfare reform in the country as of recent years. Inherent in “Agenda 2010” was a shift towards a model for labour flexibility. Labor plans also looked towards expanding formal employment. Fueled by the belief that flexibility and removal of “rigidities” within human resource management could help improve the economic status of the country, increasing production and competitiveness within an international scheme.

By 2004, Germany’s rate of capital accumulation was much slower than its labor force growth. In addition, the government had a large budget deficit. The German government initiated a series of labor market reforms in 2005, including a longer workweek, increased flexibility in hiring and firing decisions. Additionally, in an attempt to offer more incentives for the unemployed to return to work, huge government cuts on spending for unemployment benefits were enacted.

The basic features of the flexibility model incorporated a cut on legal restrictions on employers regarding conditions of employment and negotiations with workers unions and representatives. Proponents of labour flexibility models believe that a reduction in legal processes, viewed as “rigid,” actually hamper a more streamline, laissez-faire approach to human resources within the business model.

Within German flexibility models, legal restrictions were lifted on such areas as minimum wages, working hours, working conditions. Hiring, dismissals and lay-offs were then streamlined through the process of labour flexibility, lowering the costs of associated with these processes. One popular approach to modifying labour models in Germany involved decentralizing collective bargaining, the goal being a more specified tailoring of tasks within the workplace. Concepts such as “pay-for-knowledge” have also emerged as the replacement for age-old concepts of seniority-based promotions. The German model includes features not only related to wage reductions and lessening in legal restrictions on employers. It also covered areas such as a reform on Germany’s shopping hours, the least flexible of all of Europe.

A recent case study (Cleven, 2004), regards the German experience of labour deregulation as one imbuing scores low on labor market flexibility scale, while still high on welfare, scale. Through an overview of case studies on the labour market in Germany, the following list has been compiled as to the basic features and developments within recent years. This review of several case studies cite the following as the main characteristics and developments:

  Outline of features and developments of German labour flexibility

Resistance from dominating large manufacturing companies and unions as to more flexible means of labour relations

Employment characterized by consensual industrial relations, high union membership and even higher union involvement in wages, apprenticeship training, and adult education issues

Social security provisions for all

Numerically flexible manpower planning given little importance

High monetary credibility and high nominal rigidities

Medium prevalence learning model

Sectoral coordinated capitalism

Extensive use of internal labour market, retraining, transfers

Promotion of labor flexibility internally within companies, at the expense of external labor market flexibility

Processes like collective wage bargaining, co-determination and restrictions on lay-offs

Continuity as a coordinated market economy (CME)

Conservative clustering in class relation and welfare

Medium sustainability in manufacturing job base

Profitability loss in small and medium-sized enterprises, where deregulatory mechanisms hit hardest

The creation of unrestricted part-time jobs

A brief outline of German international relations and the burgeoning move towards deregulation in varying scope

Germany is the world’s third-largest economy, but it nonetheless lags in last place in the European Union for growth. Within the growing pressures of cost-cutting and greater diversity within sectors, globalization has pressed Germany into a more flexible model for labour than most may recognize. Many economists, including the IMF and the World Bank, state that a more flexible model will propel Germany into higher ranks internationally for economic growth.

In specific regard to international relations, Germany has also taken a more flexible stance, often outsourcing much of its heavy manufacturing industry labour to other nations. Many analysts of social and microeconomics feel that this move towards outsourcing multiple processes in the mechanical and electrical machinery manufacturing has actually harmed German workers, and only benefited top companies in the nation. An ILO report in Germany stated that the surge in labour market flexibility had “benefited business, contributed to productive rise, and reduced the wage share of costs.”

The following sections will outline some of the subtler aspects of this move towards flexibility in a functional, numerical, temporal and financial scope.

Functional flexibility, or the diversification of employee tasks within a company, mainly reflects a managerial and worker-training shift within the organization. A flexible firm is one that can maintain workers whose possess integrated skills to perform the needs of the central tasks of the company. Oftentimes, this can be achieved through the use of outsourcing. In a recent study on German call-centers, there was a 60% rate of outsourcing, as compared to only 27% in the Netherlands. This is one example of functional flexibility.

Numerical flexibility can be thought of as a waiting storehouse of workers in unsecured jobs that can be hired and fired easily. Such an increase in numerical flexibility in Germany has created a surge of new types of labour, including temporal flexibility through things like temporary jobs, part-time work, self-employed and freelance workers, as well as subcontractors and outsourcers, etc. And while the Germans have had an increase in numerical flexibility (4.1%), it is still lower than in other countries such as the Netherlands (34%). Part-time and temporal work flexibility is also used in the majority of firms, yet still Germany has a lower rate (40%) than other E.U. countries. It is important to mention that numerically flexible manpower planning has never been an important factor in German labour market, with a high-value being placed on the social welfare and long-term relationships.

Financial, or wage flexibility, refers to the differing amounts of pay received by various workers within an organization. This is enacted through rate-for-the-job systems, assessment based pay systems, or individual performance wages. This is a phenomenon new to the German system, and has slowly been implemented in the manufacturing and machinery sections of industry despite criticism from specialized workers groups.

Case example: the effects of labour flexibility at the micro-level of the information “digital divide”

This document has highlighted on some of the more general features and characteristics of the German labour market. This section will now overview a case example as to the actual effects of such reforms at a more micro-socionomic level such as the use of digital information technology within the labour market.

Flexibility within a free-market economy is a value-laden theoretical premise, loosely connected to innovation, competition and material success. However, this paradigm of economic organization is not inextricably linked to positive socio-economic development in many senses (Benner 2002). A recent study from the Darmstadt University of Technology in Germany States that, “ Frequently there are only short-termed motives for profit or institutional and legal frameworks that constitute flexible employment. In those cases it does not support innovation, but rather undermines success and causes inequalities, especially, if one focuses on the impacts on employees, negative aspects of flexible labor can be observed” (Benner 2002, 83).

The digital-divide and the success of Internet usage within the context of human resource management have spurred much debate within the area of labour flexibility. Deregulation has allowed the furtherance of part-time work from an Internet-based paradigm, and a clear correlation can be seen in the relationship of Internet use with household income. In Germany, only 30% of households with less than 1000 Euros income use the Internet, whereas as much as 78% households with an income of 3000 Euros and more are online.[1]

Klug (2006) states:

These findings emphasize a reinforcement of digital divide and social divide within Germany. The labor markets of the United Kingdom and the Netherlands stand for rather flexible labor markets and both have a high intensity of using the computer at work, whereas in Germany – with an assumed inflexible labor market – this intensity is rather low. This indicates that greater labor market flexibility means higher intensity of computer use at work in a country and vice versa. Greater social divide (high flexibility) would then mean less digital divide. That points out that there might be two dimensions of the “divide-cycle” – a macro and a micro level dimension – with opposed correlations.

Within the context of employment, case studies of flexible models, particularly in Germany, have had equally pessimistic results. Giesecke and Groß (2000) view flexible employment as being responsible for the growing social inequality of the labor markets, causing negative sociological outcomes such as lower income and higher social insecurity. Moves toward “temporary-employment,” (temporal flexibility) a new concept within German labour reform, significantly lowered household wages, as well as disadvantaged workers in terms of social security and health care possibilities (Benner 2002).  Klug (2006) found that severe causation of income deprivation by temporary employment is also verified in an analysis in Germany.

On a micro level, the head of the main German industry federation of Jürgen Thumann, estimates that around 70 % per cent of family-owned businesses have flexible workforce agreements. Recent studies have shown that flexibility agreements exist in three-quarters of German workplaces. These agreements are often negotiated outside normal collective bargaining, focusing on management-worker relationships instead of more traditional models. The VDMA, which represents around 3,000 workers groups, with combined annual revenue of  136bn, says that the majority of group members work within similar flexible labour modes. [2]

If we look further into the sociological aspects of flexibility, the outcome of a micro eccomic scope is grim. Arrangements for “liberalization” have increased revenue and productivity for businesses, but lowered wages and security for workers. The hardest hit, according to a recent ILO report, was Germany, Japan and the U.S. Germany represents 15% o total global production of machinery.

Workers concerned with preserving jobs are having trouble working within the new flexible production systems, as well as dealing with the long-term social implications of these changes. The ILO states that Germany, unlike success stories in countries such as Japan, USA or the UK, has provided a “mixed picture” of flexibility.

Concluding Remarks

The German success story in the flexible labour market has been one of mixed victories. Piore and Sabel acknowledge successes within major industries such as steel, chemicals, machine tools and cars. Yet, other scholars have been quick to note that flexibility has brought an increased strain on the workers themselves, “entailing increased part time work, reduced overtime pay, higher job instability, rise in “unsocial” work hours (i.e. night work, weekend work and long-shifts). The modell Deutschland has been hailed by some scholars (Koch, 1999) as the panacea to Germany’s international downfalls, stating that this model “built on co-operative relations between trade unions and employers, and a deeply embedded ethic of social partnership is recognized as a unique form of social and economic stability,  holding up as a model that other national industrial relations systems might pattern themselves on.”

Here we can see how this leaves much consideration as to the true socioeconomic ramifications of the German mixed model. As labour market flexibility increases across Europe, how will this effect workers protection? Do knew models inevitably reduce welfare as an embedded force within German society? These are the questions at the root of the flexibility debate within the German model, and will be issues that come up in the every-changing face of globalization and the labour market.


Burda, M.C., 1999, ‘European Labour Markets and the Euro: How Much Flexibility Do We Really Need’. CEPR Discussion Paper 2217.

Benner, Chris, 2002, ‘Work in the New Economy. Flexible Labor Markets in Silicon Valley. Blackwell Publishing. Cornwall.

Espring-Andersen, G., 1999, ‘Who is harmed by labour market regulations? Quantative Evidence,’ in: Espring-Andersen, G., Regini, M., ‘Why deregulate labour markets?,’ Oxford.

Geißler, Rainer, 2002, Die Sozialstruktur Deutschlands. Die gesellschaftliche Entwicklung vor und nach der Vereinigung. 3. grundlegend überarbeitete Auflage. Westdeutscher Verlag. Wiesbaden.

Groß, Martin, 2000, Flexible Beschäftigungsverhältnisse und Einkommensungleichheit. 2. Nutzerkonferenz: “Forschung mit dem

Hempell, Thomas. Zwick, Thomas, 2004, ‘Technology Use, Organisational Flexibility and Innovation: Evidence for Germany, EPKE conference, London.

Klug, Tina, ‘Development of ICT and Labor Flexibility.’ Darmstadt University of Technology.

Mitchener, Brandon, 1995, German Round Table Spawns Flexibility, International Herald Tribune.

Negotiating flexibility in call centers: the Netherlands and Germany Compared, 2005, Workshop at the 57th Annual IRRA Meetings, Philadelphia, PA.

OECD, 2006, OECD Factbook 2006, „OECD Source“, Internet Version on

Schulze-Cleven,Tobias, 2004, ‘Dis-embedding Welfare, or The Politics of Increasing Labor Market Flexibility in Europe.’

Sgherri, Silvia, 2001, ‘Labour Market Flexibility and Monetary Transmission in Europe: A Multi-Country Model-Based Analysis.’

[1] TNS Emnid und Initiative D21 2004, 16
[2] Financial Flexibility: Germany’s quiet flexibility drive. New Economist. 2006.


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