The Public Sector Pay System &

Public Procurement

National Report (Germany)Duisburg, 22th/23th March 2012

team IAQProf. Dr. Gerhard Bosch / Leila Meisaros / Gabi Schilling / Dr. Claudia

Weinkopf

Outline

1. Public sector adjustments in Germany2. Composition of public sector

employment 3. Industrial relations and social partners –

old and new model of codetermination4. Major reform of the Collective

Agreement for the public service in 2005

5. Wages and pensions: Public / private sector

6. Public procurement and prevailing wage laws PROCURE 22th March 2012 2

• German „job miracle“ - No adjustments in and after the financial crisis

• Adjustments (reduction of employees, pay freezes and cuts etc. gradually over the last 20 years

• Today German public sector comparatively small (employment in government 9.6%)

• Drivers for adjustments and the „decade of denationalisation“

• Unification• Privatization and outsourcing• Tax cuts

• Now partially repairs of this policy: prevailing wage laws and re-nationalisation of public utitilities

• Future adjustments: Debt brake

Public sector adjustments in Germany

PROCURE 22th March 2012 3

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 4

Composition of public sector employment• Civil servants in Germany not only in core

services• Civil servants: life long employment,

nomination - no work contract, no righ to strike, principle of alimentation for pay and pensions, no contributions to social insurances

• Federal Court 2/2012: Cut of entry wages for professors unlawful

• Staff reductions since 1991 by 32,4%, most reductions before 2000

• Most staff reductions fell upon non civil servants: cheaper in the short run

PROCURE 22th March 2012 5

Development of the employment in the public service (civil servants and non-civil servants) 1991 – 2010 in 1,000)

Year TotalDirect public service Indirect

public serviceTotal Federal state States Municipalities Other*

1991 6737,8 6412,6 652,0 2572,0 1995,9 1192,8 325,1

2000 4908,9 4420,9 502,0 2273,3 1502,2 143,4 488,0

2005 4599,4 3947,1 481,4 2076,9 1277,8 111,0 652,4

2006 4576,0 3897,9 477,0 2054,5 1261,2 105,2 678,2

2007 4540,6 3761,2 474,2 1948,2 1235,1 103,6 779,4

2008 4505,1 3714,7 462,2 1929,1 1220,4 103,0 790,4

2009 4547,6 3719,8 460,4 1921,5 1235,3 102,5 827,8

2010 4586,1 3741,5 457,3 1940,7 1241,5 102,0 844,7

Changes in %

1991-2000 - 27.71 - 31.36 - 23.00 - 11.61 - 24.75 - 87.98 + 50.11

2000-2005 - 6.30 - 10.72 - 4.10 - 8.64 - 14.94 - 22.59 + 33.69

2005-2010 - 0.29 - 5.21 - 5.01 - 6.56 - 2.84 - 8.11 + 29.48

*Post, Railways, joint authorities Source: Destatis 2011: 100; own calculations

PROCURE 22th March 2012 6

Changes in public sector employment* in the last two decades (in 1,000), 1991-2010

PROCURE 22th March 2012 7

Year 1991 1995 2000 2005 2010

Changes 1991-2010

Employees in public sector total in %

Federal State 652,0 546,3 502,1 481,4 457,3 -194,7 -29.9

Civil servants/ judges 115,3 134,1 132,6 130,6 129,6 +14,3 +12.4

Non-civil servants 279,4 217,9 182,9 156,7 142,0 -137,4 -49.2

soldiers 257,3 194,3 186,6 185,1 185,7 -71,6 -27.8

Full-time 628,8 521,6 465,6 427,5 405,2 -223,6 -35.6

Part-time 23,2 24,7 36,4 53,8 52,0 +28,8 +124.1

16 Länder 2572,0 2453,4 2273,3 2076,9 1940,7 -631,3 -24.5

Civil servants / judges 1072,4 1227,1 1252,5 1261,8 1253,5 +181,1 +16.9

Non-civil servants 1499,5 1226,4 1020,8 815,0 687,2 -812,3 -54.2

Municipalities 2051,4 1801,5 1572,0 1337,8 1298,7 -752,7 -36.7

Civil servants 170,5 178,9 178,6 183,2 184,6 +14,1 +8.3

Non-civil servants 1881,0 1622,6 1393,3 1154,5 1114,0 -767,0 -40.8

Indirect public service 325,1 449,9 488,0 652,4 844,7 519,6 +159.8

Civil servants 31,8 47,3 52,3 67,9 76,7 +44,9 +141.2

Non-civil servants 293,4 402,6 435,7 584,5 768,0 +474,6 +161.8

Total 5600,4 5251,2 4835,3 4548,4 4586,1 -1014,3 -18.1

Civil servants 1390,1 1587,4 1615,9 1643,6 1687,1 +297,0 +21.4

Non-civil servants 3953,1 3469,5 3032,7 2719,7 2713,4 -1239,7 -31.4

soldiers 257,3 194,3 186,6 185,1 185,7 -71,6 -27.8

* Exclusive post, railway; Source: BMI – Ministry of inner affairs, 2011: 10 (translated)

Employment in government as a % of the labor force (2008)

29.3

26.2

22.921.9

19.5

17.4 17.1 16.515.6

14.7 14.6 14.3

12.1 12.0 11.4 11.0 10.79.7 9.7 9.6

8.87.9

6.75.7

0

5

10

15

20

25

30

35

Source: OECD 2011a: 103.PROCURE 22th March 2012 8

Number of civil servants and non-civil servants by skill level and share of women in % 2010

higher service higher middle service

middle service lower service apprenticeship0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

0

10

20

30

40

50

60

70

80

398,868

866,741

458,467

48,467100,235

289,814

682,650

1,099,086

300,220

102,168

39.2

51.8

27.7

9.5

60.4

47.8

60.0

66.7

62.360.9

Civil Servants - total Non-Civil Servants - totalShare of Female Civil Servants in % Share of Female Non-Civil Servants in %

Source: Destatis 2011, own calculations

PROCURE 22th March 2012 9

Share (number) of temporary employees in the public service by sex and of total employment 2002 - 2010

2002 2005 2007 2009 2010

% of women in public sector who work on temporary contracts

9.2% (166,662)

9.6% (159,031)

11.2% (182,243)

13.0% (214,588)

14.0% (232,789)

% of men in public sector who work on temporary contracts

11.3% (128,826)

11.0% (116,690)

12.2% (127,340)

14.7% (151,742)

16.0% (166,494)

% of all employees in public sector who work on temporary contracts

10.0% (295,558)

10.1% (275,721)

11.6% (309,583)

13.6% (366,330)

14.7% (399,283)

% of all employees in Germany who work on temporary contracts*

6.6% (1,931,000)

8.3% (2,394,000)

8.8% (2,659,000)

8.6% (2,640,000)

8.9% (2,761,000)

* 15 – 65 years, without apprentices and studentsSource: Destatis 2010.

PROCURE 22th March 2012 10

Industrial Relations and social partners – old model (until 2004)

Characteristics:• Private sector sets the pattern for the public sector• High coordination and pattern agreement also for

civil servants, state owned companies and charity organizations

• Formal consultation with civil servants at federal level

• Codetermination: National and state laws on „Personalvertretung“ - kind of works councils with less rights PROCURE 22th March 2012

Unions EmployersVer.di – negotiatingDBB (Beamtenbund) = Civil servants union – negotiating and lobbying

Until 2005:Joint national negotiation committee

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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

since 2005: Fragmentation of actorsUnions Employers

seperate negotiations of doctors, train drivers, pilots

separate negotiation committees of 1. Federal State and Municipalities 2. Länder and 3. Defection of 2 Länder (Hesse, Berlin)

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Major reform of the Collective Agreement for the public service in 2005What‘s new?• Introduction of low pay grades• Performance related pay• Abolition of seniority principle• Joint wage grid for blue and white collar

workers

EffectAll in all lower wages compared to a) former collective Agreement (BAT) and b) private sector (in qualified jobs)

PROCURE 22th March 2012 13

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 14

Comparison of wage differences – old / new collective agreement (0 = BAT-Level)

-11.0

2.1

-3.3

0.4

-6.8

3.0

-14.0

-0.5

-7.9

-3.5

-12.0

-2.1

-16.3

-2.6

-11.7

-6.8

-16.2

-6.2

-20

-15

-10

-5

0

5

10

Entry level Highest level Entry level Highest level Entry level Highest level

Compared to BAT, unmarried Compared to BAT, married Compared to BAT, 1 child

Highest pay grade (TVÖD E13, BATIIa) Middle pay grade (TVÖD E8, BATVc) Lowest pay grade (TVÖD E6, BATVIII)%

Source: own calculationPROCURE 22th March 2012 15

Collectively agreed wages in different German industries 2000 – 2010 in West-Germany (2000=100)

128,9 Chemical industry128,3 Metal industry

124,4 Banks123,6 Total

120,5 Construction118,7 Retail trade116,9 Public service*

*from 2005 Federal StatesSource: WSI-Tarifarchiv (Tarifpolitischer Jahresbericht 2010) Stand: 31.12.2010

PROCURE 22th March 2012 16

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 17

Income sources and coverage of the 65+ years old population, West-Germany 2007, civil servants and non-civil servants

Coverage in % Gross pension per month in €total men women total men women

State pension 90 89 90 958 1,219 767

Occupational pension private sector

21 31 12 403 490 239

Occupational pension public sector

11 11 12 322 432 266

Civil servant pension

8 11 6 2,165 2,577 1,640

Source: http://www.sozialpolitik-aktuell.de/tl_files/sozialpolitik-aktuell/_Politikfelder/Alter-Rente/Datensammlung/PDF-Dateien/abbVIII55a.pdf

PROCURE 22th March 2012 18

Public procurement and prevailing wage laws• Value of services and goods bought by the state

above OECD average• Until mid 90‘s - state model employer also paying

agreed rates for outsourced services• Since then state major driver in expansion of low

wages – decisions of 30,000 procurement bodies mainly on lowest price

• Since 1999 introduction of prevailing wage laws in states

• First generation only on construction, Länder level and local wages, now on all services, municipalities and with minimum wages

• Level of minimum wages correponds to the lowest public sector wages (state should underbid itself)

PROCURE 22th March 2012 19

Structure of German Procurement System

PROCURE 22th March 2012 20

Process of Public Procurement in Germany

GWBGerman Law against Restraints on Competition

VgVProcurement Regulation

VOL/Apublic supply

services

1st

chapter: national procurementbelow thresholds

VOB/Apublic work

contracts

1st

chapter: national procurementbelow thresholds

2nd chapter: modifications for EU-wide procurementexceeding

thresholds

VOFself

employed

services/works

Sektorenverordnung (directive on sectors)

Source: Willenbruch/Aydintan 2010: 3, own illustration

PROCURE 22th March 2012 21

Thresholds for public procurement (Europ. Law)

EC Work contracts Supply contracts Services contracts

Public bodies 5,278,000 €

137,000 € 211,000 €

(Depending on public body)

137,000 € 211,000 €

(Depending on public body)

Entities operating in water, energy, transport, or postal services sectors

5,278,000 € 422,000 € 422,000 €

Source: Hogan & Hartson, July 20, 2006, 3

PROCURE 22th March 2012

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.

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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 23