Everyone agrees that times are tough in Germany. The unemployment rate has hovered stubbornly above the 10 percent mark for months. An increasing number of companies are slashing jobs and relocating production facilities abroad, where labor costs less and corporate tax rates are lower. It's no wonder the average German worker is worried.

Siemens, Germany's largest electronics company, issued an announcement in March stating that it would cut some 2,000 jobs at plants in Bocholt and Kamp Lintfort. It threatened to move them to Hungary if unions did not make concessions to help reduce personnel costs.

In recent years, the industrial giant has shaved 35,000 jobs as part of a plan to cut personnel costs by $30 billion. The latest events in this long saga have been closely followed by workers throughout the country. The situation at Siemens is similar to that at many German companies and the outcome could have far-reaching implications.

IG Metall agrees to 40-hour week

On Thursday, IG Metall, the trade union representing Siemens workers, reached an agreement with the company's management. In exchange for a two-year guarantee not to relocate the jobs and a promise to invest an additional €30 million ($36.4 million) in the factories, workers agreed to work an additional five hours a week at no extra pay. This will bump their total number of hours per week up from 35 to 40.

The decision by IG Metall workers to accept longer hours signals a significant reversal on a previously sacred issue, the 35-hour work week. The limit was a hard-won victory for the powerful union, established after a seven-week strike in 1984.

Companies have long loathed the 35-hour work week. Its abandonment is symbolic of the new realities in Germany.

Companies, unions struggle with new realities

German labor costs are the highest in the European Union, a fact that has not escaped the attention of CEO's. Companies need to cut costs, executives say, or they will have no choice but to relocate jobs elsewhere. In March, even Ludwig Georg Bauer, president of the German Chamber of Commerce and Industry, recommended that German companies move production to low-wage eastern European countries.

And despite German Chancellor Gerhard Schröder's protests that such a move would be "unpatriotic," neither he nor anyone else has been able to stem the tide. Volkswagen produces numerous models at its Slovak factory, which employs thousands, and is planning to cut 2,500 jobs at its German plant in Wolfsburg.

So when Siemens managers threatened to do the same, they exercised significant leverage over IG Metall, which knew the risk was all too real.

The trend towards longer hours

Now that IG Metall has given in, others are likely to follow suit and spark a trend towards longer hours throughout the country, say many experts. Employees at Germany's national railway Deutsche Bahn, Daimler Chrysler, and civil servants will negotiate new labor contracts this year. The precedent set in the Siemens case will no doubt affect the outcome. The experts are divided on whether that's a good thing.

"Those who think they can improve the ability of German firms to compete internationally via salary reductions and the seemingly endless extension of the working day will only face the same problem in one or two years," Steffen Lehndorff, a labor expert at the Gelsenkirchen Institute for Work and Technology, told the Berliner Zeitung daily. "It's an endless downward spiral," he added, pointing out that Siemens workers only won a two-year commitment.

Hagen Lesch, a labor expert at the Cologne Institute for Business Research, sees the outcome in a more positive light. "I hope it's the start of a trend," Lesch told DW-WORLD. "Of course, it's a good thing if it secures jobs in Germany. Extending the length of the working week is an excellent tool to sink the cost of production in Germany -- and ensure that German firms can compete internationally."

In contrast to Lehndorff, Lesch believes Siemens workers will not find themselves in the same position in two years time, since the company has also agreed to invest substantial sums in the two German factories. This makes it less likely they will leave it all behind to then have to invest in new facilities in eastern Europe.