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Do German workers deserve a pay hike?

As the German economy recovers, unions want higher pay. Most employers say such demands are premature - but not auto parts supplier Bosch. It says the time has come to "reward" staff for their hard work.

Bosch factory in Reutlingen

Bosch is giving workers a pay hike two months earlier than planned

It was good news for the company's metal workers: German car component supplier Bosch announced on Monday it would raise employees' wages earlier than expected.

Bosch initially planned to introduce a 2.7 percent pay hike for its 85,000 workers from April next year. That start date has now been moved forward to February 1, 2011.

Bosch is making use of a so-called "flexibility clause" in its wage agreement with the metal branch. This allows wage adjustments to be brought forward or postponed by two months, depending on the company's current economic situation. Bosch made use of the clause last year to delay a pay rise.

Bosch thanks employees

A Bosch technician at work

Bosch says it's rewarding employees for their loyalty

"Since we've seen economic recovery materialize earlier than expected we will again make use of the flexible components of our wage agreement, only this time it will be to the benefit of our employees," said Wolfgang Malchow, the head of human resources at Bosch.

"In difficult times, our employees showed a great sense of loyalty. We don't take this for granted and we thank them all," Malchow said.

The announcement makes Bosch the first large German company to reward its employees for their role in improving the company's economic performance. The group is expecting sales volume to increase 20 percent to roughly 46 billion euros ($64 billion), while profit forecasts are "very positive".

Performance premium

Bosch's announcement is likely to please German Economics Minister Rainer Bruederle. In a recent interview with Bild newspaper, Bruederle said the current boom was mainly due to the hard work of Germany's labor force.

German Economics for Economic Affairs Rainer Bruederle

Bruederle says workers should benefit from the economic boom directly

"High performance needs to be rewarded," he said, adding that this concept be applied to wage agreements wherever possible.

Other German companies, however, are reluctant to increase their employees' pay just yet. The head of the Central Union for the German Construction Sector (ZDB), Karl Robi, said construction companies were not able to pay higher wages because the "economic recovery hasn't reached the main construction sector yet. Companies need to earn the money first and invest in higher wages later."

Profits and priorities

The president of the Employers' Association in the Metal Sector (Gesamtmetall), Martin Kannegiesser, argued German companies need to get back up on their feet first: "Dividends and higher wages are clearly not their first priority now."

Patrick Adenauer from the Union of Family Companies (ASU) warned that undifferentiated demands for pay rises may even threaten the current economic recovery.

"Many companies are only barely managing to end short-time employment now and pay Christmas bonuses," Adenauer said.

Analysts suggest the recovery-reward discussion should focus on how Germany can sustain long-term growth. They argue the fact that Germany's economy is expected to grow by a 3.5 percent this year means companies are merely regaining what they lost during the crisis.

A worker inspects machinery

Employers say the economic recovery has not reached all sectors

Long-term prospects

Consulting firm McKinsey warns that structural problems - combined with high public debt, low population growth, and a lack of skilled workers – indicate Germany's current boom may be short-lived.

The group's German director Frank Mattern told the Frankfurter Allgemeine Zeitung (FAZ): "It was a great second quarter for Germany, but over the next few years Germany will probably not see growth rates exceeding two percent."

More money in consumers' pockets could increase domestic demand, which would be good for the German economy. But analysts say more comprehensive measures are needed to ensure that the recovery is stable.

Author: Nina Haase (dpa, AFP)
Editor: Sam Edmonds

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