Employees Face Reduced Buying Power Despite Pay Hikes in 2023
Although the collective wage agreements for 2023 feature table increases and special payments up to 3,000 euros, many employees could still end up with less disposable income. This issue is raised by the Böckler Foundation, closely linked to the trade unions, which believes that numerous workers will still be grappling with financial struggles.
According to an analysis from the Institute of Economic and Social Sciences at the Hans Böckler Foundation, collectively agreed wages will have risen by 5.6% on average in real terms in 2023 compared to the previous year. However, the anticipated inflation rate of 6.0% could lead to a 0.4% decrease in the real wages for employees.
To confront the inflationary impact on workers, the German government and employers agreed to provide tax- and duty-free collective bargaining-based one-off payments of up to 3,000 euros in 2023 and 2024. These special payments could potentially improve the financial balance for some employees, potentially even surpassing inflation in certain cases. As Thorsten Schulten, the Head of the WSI Collective Bargaining Archive, points out, the complexity of calculations has made it challenging to evaluate the complete impact of inflation compensation premiums.
Schulten explains that while employees covered by collective agreements might experience approximately stable purchasing power in 2023, the substantial real wage losses of the previous two years remain unaddressed and cannot be compensated within a single round of collective bargaining. Additionally, Schulten warns that the one-off payments could have a restraining effect on wage development in subsequent years.
In 2021 and 2022, real wages in Germany weakened significantly due to inflation. According to the WSI, real wages dropped by 4.7% in 2022—a historically high figure for Germany. Despite a steady increase in real wages in the 2010s and a 14% real wage gain in 2020, as reported by the WSI, prices increased dramatically more than wages in 2021 and 2022, resulting in a loss of nearly half of the real wage growth. In price-adjusted terms, pure collectively agreed wages are now at the 2016 level, as the researchers reported.
There are some exceptions to this trend, such as a 9.8% average wage increase in the public sector. The WSI has prepared model calculations for individual wage sectors and observed that the “gross-for-net” impact of inflation compensation bonuses leads to significantly higher wage increases in some sectors. The collective wage increase in 2023 would be 3 percentage points higher in the public sector than the regular increase, according to the researchers.
Moreover, the inflation premiums result in a disproportionately high wage increase for lower wage groups, as many agreements in 2023 combine percentage increases with fixed minimum amounts. This decision considers that lower wage groups have been disproportionately affected by high price increases.
In anticipation of the 2024 collective bargaining rounds, Schulten believes that the pressure on the parties involved should ease somewhat due to decreasing inflation rates. However, the significant real wage losses of the previous years still require attention, as indicated by the calculations from the Hans Böckler Foundation.
Additional Insights:
- Inflation, increased business costs, and structure-related challenges have contributed to real wage losses in Germany.
- High inflation rates have outpaced wage increases, reducing the purchasing power of nominal pay raises.
- Cost-cutting measures, such as job cuts, wage reductions, and forced reductions in working hours without wage compensation, have affected a substantial number of employees.
- Structural challenges in the German economy, such as a shortage of skilled labor and a lack of investment in both the private and public sectors, have contributed to reduced competitiveness and higher costs for businesses.
- The auto sector, a prominent part of the German economy, has faced job losses and wage reductions as companies aim to reduce costs and gain competitiveness.
- The introduction of the statutory minimum wage has been criticized because it could potentially weaken collective bargaining and lead to less effective wage increases.
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