When I think about the "Austrian model," I think of social partnership:

. . . the centerpiece of Austria's post-war economic policy. . . . a system of institutionalized cooperation between labour, business, and government which is involved in all important aspects of economic policy . . . [including] a form of voluntary and permanent incomes policy to control wages and prices and [promote] international competitiveness.

-- Alois Guger, "The Austrian Experience," pp. 60-61 in Glyn (2001)

This social partnership also includes cooperative industrial relations:

Austria

Proportion of workforce in trade unions: 47%

Legal employment framework

• Standard workweek (FT employees): 40 hours (50% of employees work 38-38.5 hours/wk)
  
• Minimum annual holiday entitlement (FT employees): 25 days (30 after 25 yrs service)

Further details
Almost all large companies, private or state-owned, are unionised. Works councils operate at the enterprise level, and employees are entitled by law to elect one-third of the members of supervisory boards of major companies. Collective agreements covering wages, benefits and working conditions are negotiated exclusively by the OGB with the National Economic Chamber and its associations.

So let's compare:

Germany

Proportion of workforce in trade unions: 27%

Legal employment framework

• Standard workweek (FT employees): Varies by collective agreement, but the average is 36 hours in the western states
  
• Minimum annual holiday entitlement (FT employees): 20 days (five day week)

Further details
German law mandates a system of work councils with broad rights of "codetermination" on some aspects of company policy and practice. In addition, German law provides for employee representation on supervisory boards of larger firms and those in particular industries.

Basic wages and working conditions are negotiated at an industry level between trade unions and employer associations. However, some firms (especially in eastern Germany) have refused to join employer associations, or have withdrawn from them and then bargained independently with unions. A number of large firms in the western Lander have withdrawn at least part of their workforce from the jurisdiction of the employers association, complaining of rigidities in the centralised negotiating system.

All in all the Austrian and German labor relations systems seem pretty similar. "Codetermination" in both countries. Longer work hours in Austria, but more holidays too, and greater unionization than in Germany.

Labor Markets

Then how about "flexibility" of labor markets?

On the "employment protection index" in 1998, Austria was at 55 (scale 0-100, 100 means maximum regulation of labor markets). So Austria is much closer to Germany (65) on that score than, say the US (5), or the UK (18). Yet Austria manages to have an unemployment rate that is nearly half of Germany's.

Guger does point out that wage flexibility in Austria is among the highest in the OECD, and wage inequality is higher in Austria than in Germany. In fact, Austrian wage differentials are the highest in Europe, in part because Austrian unions there typically have emphasized employment over wage equality (although since 1990 these inequalities have been reduced somewhat as unions have explicitly negotiated higher minimum wages in new contracts).

But this inequality doesn't necessarily mean more "flexibility": Guger thinks these wage inequalities may actually have hindered capital mobility and reallocation of labor to more competitive sectors of the Austrian economy.

Taxing, Spending, and "Red Tape"

What about the tax system? One measure of "distortionary tax revenues" as a percentage of GDP in 2000 has Austria at 31% and Germany at 27% (see table 13, p. 32 of the linked paper).

How about bureaucracy and "red tape"? The same paper has a "product market regulatory reform" index that actually puts Germany (40 on a 0-100 scale) closer to the US (23) and UK (17) than is Austria (53) (see p. 34).

Well then, how about the welfare state? In 1996 Austria allocated 26% of GDP on public social expenditures, Germany, 28%.

Fiscal discipline? Austria's government debt-to-GDP ratio is 65%, Germany's is 64%, although government spending is much more centralized in Austria -- no pesky state governments mucking up the public finances.

Now it is true that, relative to the 1970s, Austria has deemphasized Keynesian deficit spending as a means of pumping up the economy. They have also gone through a period of deregulation and privatization of nationalized enterprises (although nationalization was never all that important in Germany anyway). And, the institutions of social partnership are coming under strain, largely because of demands for more "flexibility" from Austrian business.

But, as elsewhere in Europe, the success of the Austrian "economic model" seems as much due to successful social partnership as anything else, and it is completely consistent with a strong labor movement and a generous welfare state.

So what are these German business leaders talking about again?