Germany's general applicability of collective agreements unlikely to be declared in 2015

Since January 2015, it has been much easier for the German government to declare wage agreements generally binding, compelling even businesses that are not covered by collective agreements to apply them. The government was expected that it would use this tool quite often because it has long viewed the declining collective bargaining coverage of businesses with some concern. But there have as yet been next to no new declarations of general applicability of collective agreements.

At this point, cyclical risks, which have recently increased, could play a role. Also, the government may want to wait for the employment effects of the minimum wage to unfold before obliging more businesses to adhere to collectively negotiated pay rates through declarations of general applicability. 

"In any case, the combined effect of increasing declarations of general applicability on labour costs of +1.7% (2015 and 2016 taken together), appears much too high from today's vantage point, as it would require around 30% of all collective agreements in Germany to become generally applicable. For this reason cost increases estimate is reduced to 0.3% (from 1.7%). By the end of 2016 around 5% of all collective agreements could be generally applicable", says Commerzbank. 

This would increase labour costs by around 0.3%. But this should only be the case in 2016, and so declarations of general applicability could only drive labour costs upwards from next year onwards.

Another potential driver of German labour costs is that at the start of the year it has become easier for the government to declare collective wage agreements generally binding and thereby expand the collective bargaining coverage of businesses. 

"The government has so far made practically no use of this tool, nor does it seem to intend to use it in the foreseeable future. Moreover, this effect is no longer expected to set in during 2015 and only see it coming to bear in 2016", added Commerzbank.