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July 9, 1990

GERMANY’S JOB-DESTROYING “EMPLOYMENT PROTECTION” LAWS A FACTOR IN NIXDORF SLUMP…

By CBR Staff Writer

Nixdorf Computer AG’s year results for 1989 fulfilled all the worst expectations, with a loss of $500m on normal operations on top of costs associated with the restructuring that has already seen 2,500 redundancies adding up to give a total deficit for the year of $630m (CI No 1,433), and some analysts are saying that, if German legislation on employment does not change, many other German firms could go the same way as the Paderborner. And with orders 16% down on last year at $2,530m, there does not seem to be much cause for optimism, and official statements affirm that higher losses are still expected up to the takeover by Siemens on October 1. Nixdorf cites two reasons for the collapse: firstly, speculation surrounding a takeover began to unnerve clients, particularly German ones, with the effect that the usually lively second half of the year was when the rot set in. But more significantly, Nixdorf is also admitting to the fact that management errors in its more successful past are to blame for today’s problems, among them market evaluation leading to the creation of around 5,500 jobs in 1987 and 1988 that proved too optimistic. This is perhaps only half the story, for those jobs were created commensurately with Nixdorf’s growth at the time: many are saying that the real problem was that when times became hard, legislation designed to provide job security meant that Nixdorf, unlike its counterparts in the US for example, could not scale down as quickly. As a result, while compensation for redundancies has so far cost Nixdorf over $130m, more damaging may have been the chronic overmanning that existed as growth began to slow down. This is the problem as seen from the entrepreneur’s perspective, but, writing in the Wall Street Journal, executive director of the Hudson Institute of Canada Marie-Josee Drouin argues that the legislation, brought in over a number of years to improve job security by restricting a company’s ability to hire and fire as business needs would dictate, has in fact meant that West Germany’s job creation record is dismally unimpressive. In the period from 1980-88, Ms Drouin claims that overall employment in the Bundesrepublik rose by only 1.8%: at the same time, employment in the US, where legislation is not as strict, was rising by more than that each year. According to Ms Drouin, this is because if you can’t fire, you hire more cautiously and so as labour has come to be seen more as a fixed cost than a variable cost, employers tend to substitute capital for labour. Just how much of a burden on the back of Nixdorf this was is difficult to quantify – it can be argued that without these restrictions a takeover would not have occurred and Nixdorf would have been able to downsize in the same way that Wang has – but analysts such as Ms Drouin are convinced that for the sake of the overall employment market in a newly-unified Germany, now is the time for the government, industry and the unions to look at introducing work rules that would allow more flexibility and be less costly.

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