Will new wage-rate models create jobs?

With new wage-rate models, such as those introduced by BMW, VW or in the metal industry, attempts are being made to make Germany more attractive as an investment location and to create new jobs. For Dr. Hans Werner Busch, managing director of the employers' federation, Gesamtmetall, these models are a step in the right direction. For an employment-friendly wage-rate system, he feels that "new pay models must be implemented in the collective wage contracts which would make it easier to work out solutions that fit individual firms". Dr. Hartmut Seifert of the Institute of Economic and Social Research in the Hans Böckler Foundation (WSI) points out that "wage negotiation in recent years has been much more innovative that its critics would like to believe. With new models, negotiators for labour and management have given companies varied options for reacting flexibly to rapidly changing market conditions, for saving threatened jobs via unconventional measures, and for creating new jobs". Dr. Wolfgang Scheremet, chief economist of the DGB trade union organisation, doubts, however, that "the increase in unemployment is at all attributable to the shortcomings of the collective bargaining system; instead, economic-policy failures may be responsible". Taking a more comprehensive view of the economy, he argues that "sweeping reforms are not only not urgent but may even be questionable. Wage setting is not independent of other areas of economic policy, especially monetary and fiscal policy. In a macroeconomic policy aimed at expansion, a centralised wage setting process can provide incentives for higher growth in productivity and thus for higher increases in real incomes".