The introduction of the so called 35-hours-week in EU countries

Table of contents

THE 35-HOURS WEEK
Management consultancies counterargumented

„VOLKSWAGEN“

VOLKSWAGENS´„4 DAYS´-WEEK“ OR 28.8 HOURS/WEEK MODEL

EFFECTS ON EMPLOYMENT AND WAGE RATES

EFFECTS FOR THE EMPLOYEES

EFFECTS ON OUTPUT, TECHNIQUES AND TECHNOLOGICAL PROCESS

CONCLUSION

LITERATURE

EXHIBIT 1.1 - 7

THE 35-HOURS WEEK

„Rigidities within the larger economies are starting to be tackled – but high unemployment and welfare costs still loom large“ – Tony Barber, Financial Times, Sept.10, 99 describes the necessity of taking actions. One of them is widely discussed as the introduction of the 35- hours week in European economies. Due to the influence of major economic and social changes, traditional structures are started to be set off.

Actually the latest economic and financial crisis worldwide, the exacerbating competition in technological growth and spread, greater political changes (Russia, reunification of East- and Westgermany etc.) and the introduction of the Euro-currency, triggered a change in economic and financial attitudes.

The Euro´s launch brought more dynamism to capital markets, and European Countries where mergers, acquisitions and corporate bond issuances are all gathering pace, are faced with giving up their federal monopolistic, lulling and protected economic and political behaviour, faced by the „new threat competition“.

Competition – challenging new organisation principles in european countries – is relaxing rigidities of monopolistic and governmental-protected labor and product markets.

But the welfare systems of the larger western European Countries on the other hand are still unsustainably expensive (see Exhibit 7). Roughly compared with the US, the Euro zone as a whole had, with short exceptions a much weaker economic growth. The US are deploying more quickly latest information technology within a stronger productivity growth for the last three years within an unemployment rate half of that of the Euro Zone.

illustration not visible in this excerpt

source:

Vedder, Richard K., Gallaway, Lowell E. Unemployment and jobs in international perspective, April 1999, www.house.gov/jec/ p.2

illustration not visible in this excerpt

source:

Vedder, Richard K., Gallaway, Lowell E. Unemployment and jobs in international perspective, April 1999, www.house.gov/jec/ p.2

illustration not visible in this excerpt

source:

Vedder, Richard K., Gallaway, Lowell E. Unemployment and jobs in international perspective, April 1999, www.house.gov/jec/ p.3

At the European Councils of Luxembourg (Nov.1997) and Vienna (Dez. 1998) the European Countries agreed upon designing NAPs (National Action Plans) to fight against the unsustainable high unemployment rates within Europe

„Social democratic governments have adopted a new language, warmer to labor market reforms. This will sustain faster growth in the medium term.“ argues a study by Credit Suisse First Boston.

One of the actions to be taken is the reduction of working hours („Guideline 16 of 22 in France`NAP), initiated by Premier Minister Lionel Jospin to reduce unemployment rate – about 11% – in france. The „Loi d´Orientation et d´Incitation à la Réduction du Temps de Travail“ (adopted by the french parliament on May 19, 1998) created a program of State Financial Assistance designed to accelerate the implementation of the 35-hours working week before it becomes mandatory on January 1st, 2000 for businesses with more than 20 employees and on January 1st, 2002 for all businesses. Minister Martine Aubry, important support for Minister Jospin argumented with numbers: Companies, that already introduced the 35 hours working week created 102,646 new jobs and avoided 17,627 lay offs 3) – all together about 120,000. This corresponds with the promise of the socialist party to create (and save) in 5 years between 400,000 and 700,000 jobs by intruducing the 35 hours working week.

Management consultancies counterargumented

1. that the economy of France is booming, which originated 500,000 new jobs in the last two years and
2. on the other hand are governmental subsidies wasted: 16.8 Bio. Euro in 5 years equals about
5,000 francs for each newly created job. That is more, than french companies have to pay for
overtime/hours per employee.

One result was that companies were better off by reducing the weekly working hour pattern to 35, paying overtime fees, without creating new jobs while receiving government subsidies. Other companies evaded the law, by excluding times for changing, rests etc. from working time to achieve the goal (Michelin).

On the other hand french employers could benefit from a legalized possibility of completely reorganizing their working process: performance related wages, additional working times on saturdays, but also additional days-off for the employees.

Many players are pulling on the topic in france and many threats are not made of economic origins due to their roots reaching back into deep „sozio-eco-polit- and psycho-grounds“.

But the problem still remains many-layered. The reduction of weekly working hours is only one of many other factors of the action plan (Unemployment-rate in France remains still high – see graph below) and one of the biggest economic errors might be, that Social partnerships misconceived that a reduction of weekly working hours has to deduce an adequate cut of wagerates.

Unions and Governments are negotiating to cut weekly working hours without cutting wages – they call it „wage-compensation“.

illustration not visible in this excerpt

source: www.soli.at/soli_11_97/gem.html

„VOLKSWAGEN“

I chose the Volkswagen AG to give an example, how a model (cutting weekly working-hours and wage-rates likewise) is already working.

VW followed through its concept without detours and without getting back hidden benefits by keeping open back doors (see page 3). They demonstrated, how an even bigger step than the one actually discussed is to be realised.

They passed all pros´ and cons´, on which other German companies and European Countries could not agree upon by realising a competitive model.

By its 5 years forcast and plan in the early 90s for production, marketing and facing competition, it turned out, that the efficiency conditions of VW could not fit any more a successful presence at the world market. The cost of labor could not be equalized any more by productivity and output. VW had to reorganize its production process, which meant laying off personnel on the cost of investments on the production side.

Succeeding the traditional way of leading an enterprise would have meant that 20% of the employees were endangered to be dismissed or huge amounts of subsidies necessary to rescue job security.

That is the crucial point for recent negotiations between other enterprises, unions and employees. Requirements changed and nobody is ready to pay part of the bill, in terms of accepting restrictions, by working under new conditions and to rethink the changed situation of the new developed labor- and capitalmarkets. As soon as those markets are threatened, governmental intervention in terms of subsidies or fiscal aids is promptly requested, which hides recent economic problems and paints a false picture of economic reality. But desisions cannot be banned by covering them, its a question of time that they become due to be taken again.

VW decided to step forward now. A profound management- and marketing concept „The breathing enterprise – a concept with future for a mutual success“ and concessions and restrictions on both the employers´and the employees´side enforced them to achieve selfselected goals:

Employment

Keeping the location of the plants, were they are (Germany)

Performance

Increase in productivity

Competition

quick and flexible changes in the production cycle are possible to adjust to changing marketsituations.

With their formulated guidelines „Trigger performance – cash safety and security“VW introduced the „4 days week“, a model that reduced the weekly time of working hours from already 36 to 28.8, to avoid the endangered 20% layoffs. It is a much stronger reduction than the cut from 40 to 35 hours per week (20% from 36 to 28.8 hours per week, 12.5% from 40 hours to 35) and ready to demonstrate how the economic transition from 40- to a 35- hours/week model might work for other companies.

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