East-West Integration and the Changing German Production Regime: A Firm-Centered Approach

Abstract

With the opening of Central Eastern Europe German firms have gained access to low labor costs in close geographical proximity. Intense debate about the impact this has had on the "German model" of capitalism has ensued. This paper argues that, in fact, production shifts are taking place in which cost-cutting motives are an important guideline. German firms, however, hesitate to aggressively utilize this new option in their internal domestic labor policy. Rather, firms tend to avoid confrontations with their employees on "job exports". The necessity of collaboration on both sides of the border, the relative strength of workers in the domestic high-quality production system, and the constraints of industrial relations provide explanations for the moderate behavior. So far, the outcome of the bargained reorganization is that firms gain more labor flexibility, performance-related differentiation, and labor-cost rationalization without challenging the institutionalized long-term employment commitments for their core workforce.