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A fear of commitment?

Why collective wage agreements in the retail sector are in a bad way.

The retail sector is one of the biggest sectors in Germany. Within the sector companies with and without collective agreements compete with each other.

This article is part of our Trade Letter February 2017.

What does the future hold in store for the Kaiser’s Tengelmann supermarket chain? This is an issue that very much preoccupied the retail sector and politicians – and above all the employees – last year. This resulted in the general public taking a closer look at the situation in the retail sector: What does the sector offer? How concentrated is the market? And what’s the story with collective wage Agreements?

This is by no means a bad thing because things need to change in the retail sector: ‘In recent years, the German retail sector has been increasingly shaken by a refusal on the part of employers to commit to collective agreements or at least endeavours to avoid them.’ This is the opinion of the ver.di trade union, which represents retail employees. In its ministerial approval, the Federal Ministry for Economic Affairs and Energy (BMWi) speaks of an ‘especially general interest’ in collective wage agreements.

With around three million employees, the retail sector is one of the biggest sectors in Germany. But there is no clarity as to which market players have signed up to collective agreements as there are no complete records in this area. The German federal government estimates that less than a third of businesses operate without a collective agreement. Studies conducted by the Institute of Economic and Social Research (WSI), which has close ties with the trade unions, show that the labour conditions are significantly worse within businesses with no collective agreement than at companies that do have such an agreement.

There are, however, also differences among the companies that are officially committed to collective agreements: some of these companies do not apply these wage agreements correctly and circumvent them. These competitors are in a position to recruit new employees on substantially less expensive terms than those for the companies that do adhere to collective agreements in full.

Zoom in

Studies show that in general there can be a difference in pay of around 20 to 30 per cent between companies with and without a collective agreement. This is a problem when it comes to fair competition – precisely because the profit margins are so tight in the retail sector and staff costs are such a significant factor. Confronted with this pressure, the company Real abandoned the sectoral collective agreement in 2015, adopted its own collective agreement for the future and agreed with the ver.di trade union to work on a new remuneration structure.

Why is there such little commitment to collective agreements?

There is a great deal of economic incentive to avoid collective agreements. In the case of some jobs, there is now quite a discrepancy between the collectively negotiated salaries and productivity levels. Another reason for this is that the collective agreements in the retail sector are outdated and struggle to reflect today’s reality. They were developed on the basis of the department store as a distribution format, but this has since become less important. What’s more, many of the circumstances used as the basis for evaluating a job have changed. But important changes were avoided for many years, while the metal and electrical industries, the civil service and other sectors established modern pay rate structures.

Being self-critical, it has to be said that the path trodden until now was not sustainable – many service jobs have been axed due to certain other forms of labour organisation being favoured. While this has helped to rein in the costs caused by rising wages, it does also bring with it the risk of deteriorating customer service and an ever greater burden being placed on the remaining workforce. Instead, other retailers are abandoning collective agreements and downsizing their core workforces (revolving door effect) or outsourcing entire businesses to companies with no collective agreements.

The employers and employees in the sector have been negotiating a new pay structure for many years, but have so far failed to come up with a solution. METRO is involved in this process through its pay rate experts. There is hope that the pay rate structure can be fundamentally reformed as soon as possible, thereby enabling more and more retail companies to commit to the sectoral collective agreement model once again.