There's a good argument to be made that a big chunk of the value of an engineer to Google is strategic, simply that they are locked up and aren't working at FB, Amazon, Apple or Microsoft. I was never at a high enough level to have a view into the data that would confirm that, but it certainly felt like even if you weren't particularly productive in the environment everyone up the ladder was perfectly happy to let you malinger on the payroll forever, as long as you weren't so bad that you did damage to someone's pristine art project of a codebase. So maybe inability to fire isn't really such an issue - even now, seeing anyone fired at Google, let alone an old timer, is extraordinarily rare.
This is, of course, why Germany is famously an engineering wasteland with no notable impact on the global economy.
In reality, it all comes down to contracts: union employees can have performance incentives just like everyone else. The primary difference is that they’re above board and consistent because they come from a legal agreement rather than private negotiations between individuals and companies.
I suppose you're only referring to _software engineering_?
Because in traditional engineering Germany is a powerhouse, with countless market leaders in their individual niches, plus the ubiquitous car and machinery industries.
With unions it will get harder to fire them and at the same time they will need to be compensated equally.
Software is not a profession where output is proportional to work hours like blue collar jobs. This will demoralize engineers to work smarter & harder.