Collective bargaining: Economist: Wage demands not made out of thin air

According to a ZEW researcher, double-digit wage demands in the current collective bargaining rounds are not out of thin air given the sharp rise in inflation. Inflation wiped out wage growth last year, with real wages for workers in Germany falling by 3.1 percent. “If the employees’ side in the current wage negotiations aims to reverse this loss in real wages, wages should increase by at least 3.1 percent,” explained Friedhelm Pfeiffer from the Center for European Economic Research (ZEW).

If, moreover, the aim of the unions is to keep real wages constant, then expected inflation is crucial. Like the federal government, Pfeiffer assumes that inflation will average 6 percent this year. This would mean that a further wage increase of 6 percent would be necessary. The two components would add up to a requirement of 9.1 percent.

If the employee side also wants to achieve the rate of increase in real wages on average in 2011 and 2021, wages would have to rise by 10.5 percent. “Nevertheless, it is unlikely that there will be double-digit wage agreements,” Pfeiffer expects. Higher wage agreements and possible job losses must also be weighed up.

Higher wages against the shortage of skilled workers?

In total, 567,000 jobs could be lost if earnings increased by 10.5 percent. Pfeiffer based this on an estimate widely used in labor market research, according to which a real wage increase of 1 percent leads to a 0.3 percent drop in employment and, conversely, a real wage reduction leads to an increase of 0.3 percent. However, one can assume “that higher wages will also improve the attractiveness of the work and counteract the shortage of skilled workers,” said Pfeiffer.

According to the economist, some pressure from the ongoing negotiations could take away the possibility of a tax and duty-free one-off payment of a total of 3000 euros opened by the federal government. If the offer is used, the employees will have more net with the same gross.