A union member takes part in a warning strike initiated by German union IG Metall on April 29, 2016 at the Volkswagen plant in Zwickau, eastern Germany. The powerful German union IG Metall organised a series of warning strikes overnight, hitting the automobile sector in particular, to turn up heat in wage negotiations for around 3.4 million metal sector workers across the country. / AFP / dpa / Sebastian Willnow / Germany OUT (Photo credit should read SEBASTIAN WILLNOW/AFP/Getty Images)
VW has reached a 2-year deal with union IG Metall that covers 120,000 workers © AFP

In labour relations circles at least, Mitbestimmung (co-determination) is a German word that has entered common English usage. To borrow some others, recent wage deals in Germany are either entirely in keeping with the zeitgeist — or storing up schadenfreude for the future.

On Wednesday, Volkswagen said it had agreed a two-year deal with IG Metall that is broadly similar to the one struck with employers in south-west Germany this month. The VW agreement is the single biggest in Germany, covering 120,000 workers.

Restrained wage growth had been one of four tailwinds helping German exporters over the past decade or so. The others are cheap debt, booming consumption and investment in China, and a relatively undervalued currency.

With the euro now firmer against the dollar and unions securing hefty pay rises, it is valid to ask whether the best is over for investors in Deutschland AG.

The answer is no. After unification, unions traded pay growth for job security. They did the same after the financial crisis; unit labour costs are little different now to 2012.

It is easy for unions to say this is payback time, and hard for German companies to plead poverty.

Even Volkswagen, dealing with all the costs and reputational fallout from its rigged emissions tests, is expected to report record operating profit for 2017.

German workers remain productive. Many of them make high-quality goods for which demand is relatively price-inelastic, and their chief competitors tend to be in other high-wage economies. That has helped them retain their cosseted status.

Shedding permanent staff remains difficult and costly in Germany. Companies have responded by using more workers on fixed-term contracts. Reforms to the benefits system a decade ago ensure a ready supply of such temporary staff.

Unions are more assertive and more common. One day, the pendulum will doubtless swing too far in favour of labour. But we are not there yet.

The Lex team is interested in hearing more from readers. Are German companies getting complacent and its workers too featherbedded? Please tell us what you think in the comments section below.

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