Rudolf Frauchiger: The secret to quality, wage costs and productivity

Do you earn enough? Looking at one’s own wage, it could, of course, always be better. Yet, Switzerland has the reputation of a classic high-wage coun­­try. Wages are undeniably high, at least at first glance. But then, how can our coun­try assert it­­self as one the most advantageous economic locations in Europe?

Somebody once said that it is because the Swiss wake up an hour earlier. Swit­zerland is counted among those countries with the longest working hours. Once non-wage labour costs, productivity and peaceful labour relations are added to the equation, the location of Switzerland starts to look extremely com­­petitive. When viewed in this way, maybe Switzerland does have low wages on an international scale. Let’s take a closer look.

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Direct wages – non-wage labour costs – unit labour costs
Upon superficial observation, Swiss wag­­es are among the world’s highest. That is a known fact. They are third after Den­mark and Norway. However, what counts to an employer is not what is in the pay package, but what the total employment costs are. This means that non-wage labour costs must be included. In that regard, Swit­­zer­­­land only comes eighth. Italy is at the top with 95 per cent. There, an em­­ployer must pay the welfare state an amount of non-wage costs almost equivalent to the em­­ployee’s gross salary. In Switzer­land, the ratio is 53 per cent; in the US, it is 43 per cent. In terms of labour costs being the sum of direct wages and non-wage costs, a study by the German Institute for the Eco­­nomy in Cologne concluded that Switzer­­land comes fourth after Nor­way, Belgium and Ger­­many (as of 2006). In the end, it is not the wage costs but the unit labour costs, which in­­clude labour productivity, that are crucial for competitiveness.
Thanks to high produc­­tivity, unit labour costs in Switzerland are considerably lower than in competing economic spac­­es. They have also risen only slightly since 1995. That is a competitive advantage for Switzerland. The expensive labour is compensated for. In terms of competitiveness, Switzer­land moved up to second place in 2007 (source: WEF), right after the USA and before Denmark, Germany and other countries.

In Switzerland, most people are employed
According to an OECD study, Switzer­land has the highest proportion of people between the ages of 15 and 64 who are earning a living. The average rate of em­­ployment between 1994 and 2005 was 83 per cent in Switzerland, despite low economic growth. In the USA and Ger­­many, it is 70 per cent; in Italy and Po­­land, merely 55 per cent. The average of all OECD countries is 66 per cent. Un­­employment is relatively low – at just over two per cent. This keeps the volume of government unemployment payments lower than in other countries. As a re­­sult, taxation is more favourable.

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A good social climate between employers and employees lowers costs
Employment relations in Switzerland are characterized by mutual trust. Peaceful labour relations are a tradition; labour conflicts are rare. Legal regulations are limited to basic structural conditions. Many key issues are treated in a decentralized manner, that is, on the company level, between the social partners. Employees’ legal rights of co-determination are min­­imal. In companies employing more than 50 people, employees can elect a representative.
However, the representative merely has a right to information and to involvement in matters of work safety and health care. The representative must also be con­­sulted in the case of pending mass layoffs. An actual legal right of co-de­­ter­­mination does not exist. Work day losses for sickness and work hour losses for strikes are few. In an international comparison, Switzer­land’s number of paid holidays is rather low at 31. As a result, the number of yearly work hours is considerably higher. In Zurich, employees spend an average of 1,850 hours at work. In Berlin and Paris, it is up to two months less. An average work week is 42 hours. Work assignments between 6 a.m. and 11 p.m. require no consent. This allows for consent-less dual shift operation. Overtime requires no consent, but is limited to between 140 and 170 hours per year. Maternity leave is 16 weeks.

The labour law is business-friendly
The Swiss labour law is liberal. The pe­­riod of notice is a maximum of three months. The employer is not required to justify dismissals. Protection against wrongful dismissal is limited to a few cases such as pregnancy. The labour law allows for flexible night, shift, Sunday and overtime work. Companies are mostly free to em­­ploy staff, amend con­­tracts and orga­nize flexible work hours. The low density of la­­bour market regulations lim­­its a company’s risk when investing and has an employment-friendly effect.

Switzerland is an SME country
The rising trend towards a service eco­no­­­my goes hand in hand with a trend to­­wards smaller companies as a result of in­­creasing division of labour. How­ever, the predominance of small and medium-sized enterprises (SMEs) has always been a prom­inent structural char­acteristic of the Swiss economy.
More than 99 per cent of companies have fewer than 250 full-time staff. The em­­ploy­­ees’ close commitment to and sense of responsibility for the com­­pany are, thus, key characteristics of our economy.

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A country of professionals produces quality
For a country lacking raw materials, such as Switzerland, a high level of edu­cation of the workforce is a crucial location fac­­tor. The Swiss education sys­­tem is counted among the best in the world. The public schools enjoy an ex­­cellent reputation. Of all OECD countries, Switzerland spends the most on public education. This produc­­es a highly skilled and multilingual work­­force on all levels. Yet, the proportion of the population with a college education is rel­­a­­tively low. Our vocational training system is tuned to the labour market and delivers superior work skills. A large propor­­tion of workers have served an apprenticeship with a professional specialization and receive continuous training throughout the course of their careers. Thanks to its well-trained and enthusiastic professionals, Switzer­­land is taking the lead in Europe in the field of innovations. On the global markets, the Swiss indus­try offers quality advantag­­es, which com­­pensate for the higher price with high added value. With 62 per cent of ex­­ports going to international markets, quality and innovation are decisive factors of compe­titiveness. Of those ex­­ports, 93 per cent have effective quality ad­­van­­tages, such as medical devices, pharma­­ceuticals, and mechanical engi­­­neering. Hence, Swit­z­­er­­land is well po­­sitioned in high-tech mar­kets. The Swiss industry is highly specialized in the fields of scientific instruments (pre­­cision measuring devices, medical in­­stru­­ments, pre­­ci­­sion clocks), pharmaceuticals and chemicals as well as machining tools. However, we are less present in other fields such as aeronautics and astronau­tics, electronics and computers.

Conclusion
The Swiss are well paid for work well done. By comparison, their income is taxed rel­­a­­tive­­ly low. They take home more than others. That is why Swiss employees are, for the most part, hi