Struggling with Real Wage Losses Despite High Wage Settlements
Even with relatively high wage settlements, many employees covered by collective wage agreements are on the verge of experiencing real wage losses yet again in 2023, according to an analysis presented by the trade union Böckler Foundation. This startling conclusion stems from an examination of collective agreements for approximately 14.8 million employees. The study shows that collectively agreed wages rose by an average of 5.6 percent in 2023, but this figure falls short of the assumed annual inflation rate of 6.0 percent.
Thorsten Schulten, head of the foundation's WSI collective bargaining archive, explained that inflation was only surpassed in most instances once the individual tax and contribution advantages of the high one-off payments were taken into account.
Nominally, the wage increases seen in 2023 have not been witnessed since the introduction of the current statistics series in 1998. The situation is equally unparalleled in this time frame with regard to inflation, which has surged significantly following the Russian war of aggression against Ukraine. In response to the escalating inflation, the German government agreed to exclude collectively arranged special payments of up to €3,000 from tax and duties in 2023 and 2024.
In the context of the aforementioned developments, Schulten noted that the impact of this measure cannot be universally applied to all collectively agreed wages. As a case in point, the agreement in the federal and local public sector, with this measure factored in, resulted in wage increases reaching 9.8 percent rather than 6.8 percent without it.
To mitigate the rising consequences admit for employees, the German government entered into negotiations with employers and trade unions to elude collectively agreed special payments of up to €3,000 from tax and duties in 2023 and 2024.
Observations and Insights
Expert Opinion: Decreasing Pressure on Contractual Partners
The one-off payments are now weakening the expected wage growth for the imminent future as they have contributed to offsetting the current year's price increments, which the politicians intended to counteract the consequences of inflation.
The one-off payments primarily benefited lower wage groups, which also witnessed above-average gains from here and then agreed-upon fixed wage increase amounts. "The parties to the collective agreement have acknowledged that the lower wage groups suffer particularly from the high rate of price hikes," according to Schulten.
Given the falling inflation rates, Schulten anticipates less pressure on the contractual parties in the forthcoming year. Nevertheless, the need to recuperate real wage losses from the recent past is still notable. According to Böckler's computations, current real wages are now at par with the 2016 level, making three years of negative growth a reality.
Additional Information
The high inflation rate in Germany is causing a significant decrease in the purchasing power of workers, leading to escalating pressures for higher wages and better working conditions.
The government has taken measures like installing energy price brakes and introducing nationwide transport passes (such as the Deutschlandticket) to lessen the influence of inflation on people's lives. Regrettably, these measures have not managed to offset the effects of high inflation on real wages fully.
The presence of unions in Germany is also heightening industrial strife as workers seek to preserve their purchasing power in the face of escalating costs. Union activity is characterised by an increase in strikes, reflecting the shifting power dynamics in the labor market.
Recommendations
German employers and trade unions should collaborate to find comprehensive solutions to mitigate the impact of high inflation on real wage growth. This effort should include addressing underlying causes, such as increasing productivity, negotiating rational wage adjustments, and advocating for comprehensive government policies to combat elevated inflation.
Further Reading
The study conducted by the Böckler Foundation was primarily focused on analyzing collective wage agreements for a group of 14.8 million employees covered by such agreements. After examining the data, it was found that collectively agreed wages rose by an average of 5.6 percent in 2023, falling short of the assumed annual inflation rate of 6.0 percent. In many instances, inflation was only surpassed when considering the individual tax and contribution advantages associated with the high one-off payments.
The period from 1998 to the present has seen the most significant wage increases and inflation marks since the introduction of current statistics series. Similarly, inflation has reached unprecedented heights following the Russian war of aggression against Ukraine. In a bid to reduce the consequences for employees, the German government agreed to forgo taxes and duties on collectively agreed special payments of up to €3,000 in 2023 and 2024.
As per Thorsten Schulten, head of the foundation's WSI collective bargaining archive, this measure did not have a universal impact on all collectively agreed wages. As an example, the salary agreement in the federal and local public sector saw a wage increase of 9.8 percent instead of 6.8 percent without the aforementioned effect.
Expert observations have highlighted the fact that the one-off payments have played a crucial role in dampening the anticipated wage increments for the coming years. The effect of these payments in offsetting inflation-related price hikes, which politicians aimed to alleviate, has been particularly notable for the lower wage groups, who have experienced above-average gains from the fixed wage increase amounts.
In light of the falling inflation rates, Schulten anticipates that there will be less pressure on contractual parties in the forthcoming year but stresses the need to strengthen real wage growth in the wake of past losses. According to Böckler's calculations, the current real wage level is now back at the 2016 level after three years of negative growth.
The German labor market's purchasing power, having been impacted by high inflation, is placing increased pressure on employees, driving them to seek better wages and working conditions. To counteract inflation's effects on real wages, the government has adopted measures like energy price brakes and nationwide transport passes (such as the Deutschlandticket). While these interventions have offered some respite, they have been unable to fully alleviate the strain on real wage growth.
Union activity in Germany has also increased, with strikes becoming more common as workers endeavor to protect their purchasing power in the face of escalating costs. This trend represents a shift in labor market power dynamics. In light of these developments, employers and trade unions should collaborate on finding comprehensive solutions to address the root causes of the problem and negotiate rational wage adjustments while advocating for comprehensive government policies to manage inflation.
- Despite high wage settlements and one-off payments instituted by the German government, many employees will still be affected by real wage losses due to inflation.
- In the federal and local public sector, the one-off payment led to a substantial increase in wages, with salaries soaring by 9.8 percent instead of 6.8 percent without the impact.
- The one-off payments have played a role in tempering the expected wage increases for the coming years, as they have offset the inflation-related price hikes that were intended to mitigate the consequences of inflation.
- Despite falling inflation rates in the immediate future, the need for real wage catch-up is still substantial, as current real wages have reached the 2016 level after three years of negative growth.
- The high inflation rate is causing a significant decrease in the purchasing power of workers, resulting in increased pressures for higher wages and improved working conditions. Source:
The enrichment data provides a more detailed analysis of the situation, emphasizing the impact of inflation on real wage growth and the various measures adopted by the German government and unions to address this issue. It highlights the connection between inflation, one-off payments, and wage growth, emphasizing that while the wage settlements were relatively high, the impact of inflation eroded their purchasing power, leading to real wage losses for many employees. The data sheds light on the role of unions in advocating for higher wages and better working conditions, as well as the government's attempts to mitigate the impact of inflation through measures like energy price brakes and transport passes. Ultimately, the data calls for a concerted effort by employers, unions, and the government to develop comprehensive solutions to address the root causes of inflation and real wage growth stagnation in Germany.
