The Public Sector Pay System & Public Procurement

1. The Public Sector Pay System & Public Procurement National Report (Germany) Duisburg, 22th/23th March 2012 team IAQ Prof. Dr. Gerhard Bosch / Leila Meisaros / Gabi Schilling / Dr. Claudia Weinkopf

2. Outline • Public sector adjustments in Germany • Composition of public sector employment • Industrial relations and social partners – old and new model of codetermination • Major reform of the Collective Agreement for the public service in 2005 • Wages and pensions: Public / private sector • Public procurement and prevailing wage laws PROCURE 22th March 2012

3. Public sector adjustments in Germany • German „jobmiracle“ - Noadjustments in and after thefinancialcrisis • Adjustments (reductionofemployees, payfreezesandcuts etc. graduallyoverthe last 20 years • Today German publicsectorcomparativelysmall (employment in government 9.6%) • Drivers foradjustmentsandthe „decadeofdenationalisation“ • Unification • Privatizationandoutsourcing • Tax cuts • Nowpartiallyrepairsofthispolicy: prevailing wage lawsandre-nationalisationofpublicutitilities • Future adjustments: Debtbrake PROCURE 22th March 2012

4. Debt brake – A model for Europe? • 2009 amendment of constitution: debt brake requires federal government to eliminate its structural deficit by 2016 • Structural new debt to be capped at 0.35 per cent of GDP until 2016 • Exceptions in the event of specific emergencies and if economy is weak. Deficits should then be offset with surpluses during upswings • from 2020 the Länder no longer allowed to run structural fiscal deficits at all • Substantial difficulties to measure potential domestic product: Variations between 27,6 and 43,5 Billion € for 2016 PROCURE 22th March 2012

5. Composition of public sector employment • Civilservants in Germany not only in coreservices • Civilservants: lifelongemployment, nomination - noworkcontract, norightostrike, principleofalimentationforpayandpensions, nocontributionstosocialinsurances • Federal Court 2/2012: Cut ofentrywagesforprofessorsunlawful • Staffreductionssince 1991 by 32,4%, mostreductionsbefore2000 • Most staffreductionsfell upon non civilservants: cheaper in theshortrun PROCURE 22th March 2012

6. Development of the employment in the public service (civil servants and non-civil servants) 1991 – 2010 in 1,000) *Post, Railways, joint authorities Source: Destatis 2011: 100; own calculations PROCURE 22th March 2012

7. Changes in public sector employment* in the last two decades (in 1,000), 1991-2010 * Exclusive post, railway; Source: BMI – Ministry of inner affairs, 2011: 10 (translated) PROCURE 22th March 2012

8. Employment in government as a % of the labor force (2008) Source: OECD 2011a: 103. PROCURE 22th March 2012

9. Number of civil servants and non-civil servants by skill level and share of women in % 2010 Source: Destatis 2011, own calculations PROCURE 22th March 2012

10. Share (number) of temporary employees in the public service by sex and of total employment 2002 - 2010 * 15 – 65 years, without apprentices and students Source: Destatis 2010. PROCURE 22th March 2012

11. Industrial Relations and social partners – old model (until 2004) • Characteristics: • Private sectorsetsthepatternforthepublicsector • High coordinationandpatternagreement also forcivilservants, stateownedcompaniesandcharityorganizations • Formal consultationwithcivilservantsatfederallevel • Codetermination: National andstatelaws on „Personalvertretung“ - kindofworkscouncilswithlessrights PROCURE 22th March 2012

12. Industrial Relations: New Model of codetermination • Decoupling from agreements in the private sector • But negotiated fragmentation: Coverage still 98% • Plurality of agreements - with opening clauses for Länder • Increasing differentiation of salaries, reduced Christmas bonus and (increased) weekly working hours • No allowances for children and married partners PROCURE 22th March 2012

13. Major reform of the Collective Agreement for the public service in 2005 • What‘snew? • Introductionoflowpay grades • Performance relatedpay • Abolition ofseniorityprinciple • Joint wage gridforblueandwhitecollarworkers • Effect • All in all lowerwagescomparedto • formercollective Agreement (BAT) and • private sector (in qualifiedjobs) PROCURE 22th March 2012

14. Wages and pensions – Public / private sector • Lower increases of agreed wages in public sector between 2000 and 2010 • Average gross earnings per year slightly lower for men and slightly higher for women • Gender gap lower in public sector (for full-time and earnings per year 17,8% vs. 21,4% in private sector) • Wages are higher for low skilled, for East-Germany up to higher deciles, for West-German women up to higher deciles and for West-German men in the lower deciles • Pensions are substantially higher (civil servants one-tier system, occcupational pensions for non-civil servants) PROCURE 22th March 2012

15. Comparison of wage differences – old / new collective agreement (0 = BAT-Level) Source: own calculation PROCURE 22th March 2012

16. Collectively agreed wages in different German industries 2000 – 2010 in West-Germany (2000=100) 128,9 Chemical industry 128,3 Metalindustry 124,4 Banks 123,6 Total 120,5 Construction 118,7 Retail trade 116,9 Public service* *from 2005 Federal States Source: WSI-Tarifarchiv (Tarifpolitischer Jahresbericht 2010) Stand: 31.12.2010 PROCURE 22th March 2012

17. Gross earnings per hour, month, and year of men and women in the private and public sector* full-time (part-time) 2010 *only non-civil servants, non-market services (includes charity organizations) Source: Statistisches Bundesamt , Fachserie 16, Reihe 2.3 PROCURE 22th March 2012

18. Income sources and coverage of the 65+ years old population, West-Germany 2007, civil servants and non-civil servants Source: http://www.sozialpolitik-aktuell.de/tl_files/sozialpolitik-aktuell/_Politikfelder/Alter-Rente/Datensammlung/PDF-Dateien/abbVIII55a.pdf PROCURE 22th March 2012

19. Public procurement and prevailing wage laws • Value ofservicesandgoodsboughtbythestateabove OECD average • Untilmid 90‘s - statemodelemployeralso payingagreedratesforoutsourcedservices • Sincethenstatemajordriver in expansionoflowwages – decisionsof30,000 procurementbodiesmainly on lowestprice • Since 1999 introductionofprevailing wage laws in states • First generationonly on construction, Länder levelandlocalwages, now on all services, municipalitiesandwithminimumwages • Level ofminimumwagescorrepondstothelowestpublicsectorwages (stateshouldunderbiditself) PROCURE 22th March 2012

20. Structure of German Procurement System PROCURE 22th March 2012

21. Process of Public Procurement in Germany Source: Willenbruch/Aydintan 2010: 3, own illustration PROCURE 22th March 2012

22. Thresholds for public procurement (Europ. Law) Revised thresholds from 1 January 2012 : Work contracts € 5,000,000. supply contracts € 130,000 or € 200,000 and € 400,000 for entities operating in water, energy, transport etc. PROCURE 22th March 2012

23. Prevailing wage laws for public procurement О Federal states with prevailing wage laws О Federal states preparing prevailing wage laws О Federal states without prevailing wage laws Minimum wage available or planned PROCURE 22th March 2012