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Business

Rethinking Job Protection Laws

As German unemployment remains high, the debate over whether job protection laws prevent companies from hiring has flared up. Industry wants to abolish or alter the rules; others fear US-style "hire and fire" practices.

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Are rules against dismissal job savers or job killers?

There have been times over the past several years that the brothers Torsten and Volker Lehmann, managers of a small engineering firm in the central German city of Bielefeld, would have liked to hire a few more hands to help out when they landed a large contract. But increasing the number of people on the company's payrolls would invoke the country's Protection Against Dismissal Law, which makes lay-offs costly and time-consuming after employees pass a six-month probationary period.

"Then once that big contract ran out, it would mean we would have a lot of employees and not very much work," Torsten Lehmann told DW-WORLD.

So they have decided against hiring, choosing instead to put in a lot of overtime themselves.

That decision is typical for companies, say critics of job protection rules, including many of Germany's conservative politicians. In their opinion the regulations, which apply to companies with more than ten employees, keep employers from hiring and hurts Germany's competitiveness in the global economy.

"Once they fall under employment protection, employers can't react to changes in business conditions or markets," Irwin Collier, a professor of economics at the Free University in Berlin, told DW-WORLD. "You can't react the same way competitors would elsewhere."

Strict firing rules

The dismissal protection law, in place since 1969, lays out a limited number of legal reasons for which employers can lay off workers, allowing dismissal on grounds of lack of ability, ill health or misconduct.

Mercedes SLK Produktion in Bremen Arbeiter in Deutschland

Protecting workers from dismissal doesn't leave room for flexibility during peak work seasons.

It does allow employers to lay off employees if business slows considerably, but then requires that managers follow rules determining who can be fired and in what order. For example, employees with seniority are better protected than new hires; parents have an advantage over childless individuals.

While it is not impossible to fire an employee under the rules, it can involve hefty severance packages and trips to court. Last year 635,772 cases went before judges. In the end, critics say, the rules drive up wage costs, which in Germany are already among the world's highest.

Whether to keep the job protection rules, change them or scrap them all together is the latest debate to flare up as the country struggles with unpopular welfare and labor-market reforms put in place by Chancellor Gerhard Schröder's government as an attempt to boost the economy and cut joblessness.

The changes include cuts and benefits, increased pressure on the unemployed to accept low-wage jobs, growing health-care contributions and a freeze on pension. Business leaders and many economists say changes in job protection rules are also needed.

"The current job protection rules present barriers to employment instead of encouraging it," Anke Podewin, deputy head of the labor law department at the BDA employers association, told DW-WORLD. "It's urgent that they be eased, but not completely done away with."

Many proponents of loosening the rules point to Germany's northern neighbor Denmark, which started making it easier to hire and fire workers in the early 1990s. They say the deregulation helped bring about a sustained employment boom there. While Germany fights an unemployment rate that is currently at 10.6 percent and growing, only 6 percent of Denmark's 5.2 million are out of work. Since 1994, Denmark has had annual growth rates averaging 2.6 percent, compared with just 1.4 percent in Germany.

Friedrich Merz Galerie deutsche Politiker

Friedrich Merz

Conservative politicians in Germany are generally in favor of a change in the law, but they are not united on what that change would be. Deputy parliamentary faction head Friedrich Merz (photo) of the Christian Democratic Union wants to do away with the protections all together. Others take a more moderate stance, calling, for example, for new hires to receive no protection or lengthening the six-month probation period to three years before protections kick in.

Security provider

While job protection measures are not exactly liked by managers, they do enjoy widespread popularity among many workers, unions and left-leaning politicians. They say that loosening or abolishing the rule would leave employees unprotected against the sometimes capricious will of their employers.

Bundesrat Protest gegen Arbeitsmarktsreform

"Unmoral" and "inhumane" read the protestors' posters during a demonstration against planned labor reforms

They warn of social instability and widespread insecurity among employees, who will not be able to plan far into the future if they don't know if they will have a job then. They urge not to go down the road of the United States and its "hire and fire" policies.

"We don't want American-style labor conditions" has become a battle cry.

The governing coalition of Social Democrats (SPD) and Greens has said it has no plans to abolish the rules. SPD head Franz Müntefering told Reuters he did not see any connection between diluting job protections and bringing down unemployment.

Others point to the benefits of job protection rules, saying they provide advantages such as job stability and loyalty, which can lead to employees' investing more in their jobs.

"Employment security can encourage employers to offer training programs for employees where they gain new skills and qualifications," Holger Bonin, a labor analyst at the Bonn-based Institute for the Study of Labor, told DW-WORLD.

He plays down the Danish example as a model, saying that labor markets in Denmark and Switzerland -- another country with few rules regarding job protection -- are very different than that of Germany. When Denmark repealed its job protection laws, it put in place a series of active measures to help the unemployed find new work. So far, there has been no talk of creating such programs in Germany.

One tool among many?

Economists doubt whether just weakening job protection rules will directly lead to job creation, saying it should be part of the general overhaul of labor market regulation. Most say it's no panacea.

"It’s a solution to one of the problems," Albrecht von der Hagen of the Federation of German Industry said. But other painful issues such as wage costs, hours worked during the week and annual vacation time "have to be tackled at the same time."

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