A new draft law proposed by the German government, designed to promote adherence to collective bargaining agreements among companies bidding on federal contracts, is facing skepticism from the Institute for German Economy (IW). The institute’s experts express doubts about the law’s effectiveness and caution that it could place an additional burden on businesses.
According to Hagen Lesch, an IW expert, the legislation appears to generate more bureaucracy than it solves. He points to the experience in North Rhine-Westphalia, a region with existing tariff loyalty regulations, where adherence to collective agreements among companies has actually declined from 36.6% to 25% since 2014.
The IW’s assessment suggests that if the federal government receives fewer bids and is compelled to pay higher prices to large companies to ensure adherence to agreed-upon standards, taxpayers will ultimately bear the cost.
The institute also raises concerns about the potential impact on smaller and medium-sized enterprises (SMEs). Larger, often already tariff-bound companies, may be favored, potentially discouraging smaller, non-tariff bound businesses from participating in public tenders. This is due, in part, to the potential difficulty SMEs face in absorbing tariff wages and, crucially, the overwhelming administrative tasks associated with compliance.
The proposed law stipulates that, above a threshold of €50,000, the federal government will only award contracts to companies that guarantee adherence to collective bargaining standards, extending this requirement to potential subcontractors as well. The intention behind the legislation, championed by the Federal Labor Minister, is to incentivize employers to adopt collective bargaining practices.