Oct. 24 (Bloomberg) –- Daimler AG is among German companies that have found a way to cut personnel costs in the high-wage country: buy labor like it’s paper clips.

By purchasing certain tasks such as logistics services from subcontractors, businesses can legally keep these workers off the payroll and outside of wage agreements with unions. That’s led to growing ranks of contract workers who help boost profit at German companies by lowering labor costs.

The downside is abuse of the system, which leaves some workers unprotected and even unpaid. That’s caught the attention of Labor Minister Andrea Nahles, who’s promising a crackdown, and forcing Germany Inc. to defend the practice.

“We can’t pay everyone the high wage” in union deals, Wilfried Porth, Daimler’s personnel chief, said in an e-mail to Bloomberg News. “Our cost situation has deteriorated compared to the competition. We can’t afford that.”

Proponents argue hiring subcontractors to provide services keeps Germany, where labor costs in the auto industry are the highest in the world, competitive. Opponents say the widespread practice in industries that include shipbuilding, retail, logistics and construction undermines the German labor model of a partnership between employers and workers.

Every third employee in the German auto industry is working either for a subcontractor or as a temporary laborer, according to a poll by IG Metall union published last November. Doing so has helped keep in check already high personnel costs, which amount to 48.40 euros ($61.27) per hour on average, according to the Berlin-based VDA auto industry group. This compares to 4.81 euros in Romania and 25.63 euros in the U.S.

David Fuller's view

In the utopian fantasy of socialist regimes, wages are pushed up to uncompetitive levels.  This forces successful employers, who face competition from the real world, to automate wherever possible, while reducing staff and/or opening more factories in countries where they can find skilled labour at lower salaries.  They also keep many workers off payrolls and out of unions, as described in the article above.

Germany has succeeded more than most socialist countries because of its legendary engineering and manufacturing skills, and minimal population growth, which lowers the youthful unemployment problem.  However, Germany’s economy has experienced minimal GDP growth for a number of years, despite being the EU’s success story.  This will lead to further downward pressure on the Euro over time.