July 13, 2004

Lessons in Reality for Apprentices

BERLIN, July 12 - At a cavernous white factory complex near the Baltic Sea in Laage, Germany, where 414 people make gas generators used to inflate automobile air bags, the plant manager, Thomas Grupp, is in a bind.

Although sales at the plant, owned by TRW Airbag Systems, are on track to rise to 190 million euros this year, Mr. Grupp may be forced to cut costs and to delay hiring.

European auto sales are slumping and German carmakers are under price pressure, but these are not the reasons for the possible cuts. What is prompting Mr. Grupp's caution is a German government plan to force millions of companies to hire extra apprentices or - in TRW's case - pay a 50,000 euro annual fine.

"This is not the way to kickstart German business,'' said Mr. Grupp, whose company is a unit of TRW Automotive of Livonia, Mich. "What I need is more flexibility in hiring and firing - not increased costs.''

With German economic growth averaging just 0.3 percent a year since 2001, and unemployment in May at 10.5 percent, the Social Democrat-Green Party ruling coalition is poised to levy an apprentice fee that businesses say would worsen the prolonged stagnation. Business protests have led to a delay in imposing the fee, but the threat still looms large.

Most companies with 11 or more workers that do not employ 7 percent of their work force as apprentices would be forced to pay 3,500 euros a year for each missing apprentice, according to the Federal Institute for Vocational Research in Bonn, a government researcher. For big employers like DaimlerChrysler, based in Stuttgart, the yearly payments could top 1 million euros.

Business groups and opposition conservative lawmakers are threatening lawsuits if Chancellor Gerhard Schröder imposes the fines, which would be used to pay for two- to three-year apprenticeships for what the Bonn institute estimates are 35,000 to 100,000 teenagers without trainee jobs.

"This isn't going to work,'' said Stefan Schneider, an economist at Deutsche Bank Research in Frankfurt. "Businesses in Germany are hiring fewer apprentices because there isn't enough work to go around. You can't penalize them for a bad economy.''

Proponents of the fee, including the Berlin-based Deutscher Gewerkschaftsbund, a lobbying organization with 10.3 million members from eight of Germany's biggest unions, contend the fees will force German businesses to shoulder greater responsibility and costs for training.

"We're trying to be sensitive to the plight of small businesses, that's why we exempted firms with 10 or fewer workers,'' said Ulrich Kasparick, a member of the ruling coalition who is vice chairman of the Education and Research Committee in the lower house of Parliament, which helped draft the proposal. "Big companies aren't training our youth, and this is an attempt to make them more responsible.''

At its core, the law seeks to address the plight of Germany's vaunted vocational training system, which took shape under medieval craftsmen and today still relies on apprenticeships as the gateway to full-time employment. Even today, Germans seeking to work as bank clerks, restaurant cooks and bakers must first complete an apprenticeship .

But as the economy began to slow in 2000, businesses cut back. This year, they are offering only 1.6 million paid apprenticeships, down from 1.8 million in 2000, according to the Bonn vocational institute. That has left as many as 100,000 people between the ages of 17 and 25 without prospects.

"We don't have enough apprenticeships in Germany because Germany is in the midst of an employment crisis,'' said Gunter Walden, a vocational training expert at the Bonn institute who says the fee would probably lead to less hiring. "In many industries, jobs are being cut. In some, people are being trained for jobs that no longer exist.''

Christian Stahnke, an 18-year-old student at the Heinz-Brandt-Oberschule in Berlin, has applied to 35 companies this year looking for an apprenticeship as an auto mechanic but has come up empty. "I'm willing to work anywhere in Germany, but at the moment, there isn't much out there,'' Mr. Stahnke said.

Karla Werkentin, the principal at Mr. Stahnke's school, said 90 percent of her students will not find apprenticeships this year. The others will go into government job training programs or end up idle. "This is a ticking time bomb,'' she said.

Critics say the law will penalize employers at a time when the economy is only beginning to recover. Most employers will opt to pay the fine, Mr. Walden predicted, because 3,500 euros is less than the 10,000 to 16,000 euros it would cost to employ an apprentice.

DaimlerChrysler, which employs 7,500 apprentices in Germany, or 5 percent of its German work force, would have to hire 3,000 more apprentices - or pay the fine.

"We're categorically against this plan because it would cause the company a variety of negative consequences, principal of which would be the higher costs,'' said Verena Mueller, a DaimlerChrysler spokeswoman.

Even large employers that already comply with the law, like the Düsseldorf-based Metro, Germany's largest retailer, oppose the fee as an unwanted regulatory burden.

"It would add administrative costs on us just to prove to the government that we're complying with their regulation,'' said Jürgen Homeyer, a Metro spokesman.

The burden could be greatest on Germany's small and midsize companies, which are already struggling. In 2003, a record 39,700 German companies filed for insolvency, according to the German Federal Statistical Office, up 5.5 percent from 2002. The credit rating agency Creditreform, based in Neuss, Germany, predicts the number of corporate bankruptcies will rise this year from 39,000 to 41,000.

At the 55-employee Motzener Kunstoff-und Gummiverarbeitung, a maker of plastic and rubber washers and moldings used in appliances and truck axles, 16 miles southeast of Berlin, the owner, Thomas König, said the fee would be counterproductive.

Mr. König has six trainees, 11 percent of his work force, and would not be required to pay the fee. But he typically adjusts the number of apprentices to meet available business.

If Mr. König were bound by law to employ a set number, he would do so to avoid the fee. "But my business is cyclical, so I wouldn't be able to offer the extra apprentices full-time jobs,'' he said.

At Somatex Medical Technologies, which makes medical equipment like bone marrow biopsy needles in Teltow, a mile southwest of Berlin, the owner, Frank Kniep, sees the proposal as another burden on small businesses.

Somatex has 30 workers, including 2 trainees - just meeting the 7 percent minimum. "I think it's a good goal to hire more trainees because trainees are our future,'' Mr. Kniep said. "But I'm opposed to the method. The administrative burdens on us are already too high.''

At TRW Airbag in Laage, Mr. Grupp, the plant manager, said fines would force him to cut operating costs and delay hiring. TRW Airbag Systems employs 15 apprentices, which meets his company's need, but would fall 14 short of the mandated minimum.

"I'd pay the fines,'' Mr. Grupp said. "I'm not going to train people for jobs that don't exist.'' On June 16, Mr. Grupp and other business managers won a reprieve when lawmakers agreed to delay imposing the fines for at least five months and perhaps a year to see if employers fulfill a promise to increase apprenticeships voluntarily.

Lawmakers held off after the Deutsche Industrie- und Handelskammertag, which represents 81 regional chambers of commerce, agreed to encourage members to create 30,000 new apprenticeships a year through 2006 voluntarily.

A chief union organizer predicted voluntary efforts would fail and said the push to impose fines was likely to regain momentum after a government auditor's report in November measures the success of voluntary job creation.

"There aren't going to be any new apprenticeships - everybody knows that now,'' said Christian Kühbauch, a Deutscher Gewerkschaftsbund executive responsible for youth employment. "In November, our members are going to look at the numbers and say, 'We've given it a chance, now let's go with the fines.' ''

The Social Democrats' ruling coalition has kept the option open, sending the fee legislation to a committee that can enact the fines without further legislative approval. If the job picture does not improve, Mr. Kühbauch said that could happen as soon as January. But some Social Democrats say the legislation could not realistically be considered until the middle of next year.