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Siemens deal paves way to longer German work week

By Katie Allen

BERLIN, June 28 (Reuters) - A deal to lengthen working hours at industrial giant Siemens AG could set a precedent for other German firms that would boost competitiveness and -- in the medium term -- help create new jobs, economists said on Monday.

After threatening to move 2,000 jobs to Hungary, Siemens agreed with Germany's largest industrial union IG Metall last week to lengthen the working week to 40 hours from 35 without raising wages at two mobile phone handset plants.

Economists say such a move at other firms could boost productivity and competitiveness by reducing German labour costs, the second highest in the world after Norway's according to the Organisation for Economic Cooperation and Development.

The country has to cut labour costs and boost innovation if it wants to stem the tide of firms relocating to cheaper production locations, economists said.

"Germany gets a large part of its demand from abroad, and the world is getting cheaper so they have to stay on the ball," said Michael Burda, a labour expert at Berlin's Humboldt University.

Wolfgang Franz, head of the ZEW economic research institute and an economic adviser to the government, said longer hours may mean fewer jobs in the short term but the medium-term effect should be positive for employment.

"In the medium term, production and sales could expand because competitiveness in an international context would grow thanks to lower labour costs," Franz told Reuters.

Dieter Hundt, president of the BDA employers association, said the deal at Siemens, one of Germany's biggest employers with 170,000 on its payroll, could set an example.

Truck maker MAN says it is negotiating longer hours at one plant, while carmaker BMW is investigating whether to introduce a longer week in parts of its business.

Union sources said last week car maker DaimlerChrysler AG was also demanding "productivity improvements" from up to 10,000 staff.

END OF SHORT WORK WEEK?

International Labour Organisation statistics show the average German worked 1,444 hours in 2002, compared with 1,815 hours for the average U.S. worker. Only the Norwegians and Dutch worked fewer hours than Germans.

According to Burda, Germans work 14.5 hours per capita each week, compared with 20 hours in Britain and 22 hours in the United States. The figures take into account the entire population aged 16 to 65.

Many German workers are employed under strict sector-wide agreements on wages and working time. But pressure is growing on unions to allow individual firms more freedom to tailor pay and conditions.

IG Metall stressed that the deal with Siemens, which has a tradition of maintaining close relations with its workers, was reached in "very particular and extremely difficult conditions" and should not serve as a model to other firms or sectors.

IG Metall leader Juergen Peters said a five-hour increase in weekly hours could push unemployment past the six million mark from the 4.37 million people out of work in May.

"This would be the biggest job destruction programme of post-war history," he said in a statement. "Those making such demands are irresponsible and have no conscience."

Reinhard Bispinck at the union-backed Institute for Economic and Social Research questioned the need for longer hours, citing booming exports and high productivity rates.

An effective 15 percent rise in hours would not necessarily be accompanied by an equivalent increase in demand, he said.

But some economists argue that with one in 10 Germans out of work, an underlying change to the labour market such as longer working hours could boost business, create jobs and haul consumer demand out of the doldrums.

"The labour market is still the problem child of the German economy," said Manuela Preuschl at Deutsche Bank.

Increasing working hours is the least painful way of boosting German competitiveness, because other options such as job cuts or phasing out Christmas and holiday bonuses would further hurt consumer spending, said Preuschl.

Andreas Rees, an economist at HVB Group, said introducing longer hours could make consumers more willing to spend if they felt their jobs were safer. (Additional reporting by Sven-Markus Egenter)