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As of: 08/27/2021 5:06 p.m.
Rail strikes and five percent demands in the public sector: In view of the high inflation, the unions are calling for stronger wage increases again. Future wage rounds are likely to be more competitive.
The unions are demanding five percent more salaries for the approximately one million public sector employees in the federal states. In addition, Verdi and the official association dbb demand a monthly minimum amount of 150 euros, as they announced yesterday. The employees are thus indicating a possible end to the restraint in the corona pandemic. In terms of the economy, the signs point to an upswing – and inflation is causing real wages to fall.
However, according to economists, wage increases on a broad front can trigger a dangerous wage-price spiral that will further fuel temporarily very high inflation. This is the name given to the reciprocal relationship when wage and price increases trigger a chain reaction as a result of adjustment reactions by trade unions and companies.
“Securing purchasing power”
“There are areas in the public service where it is steamy and boiling,” said Verdi boss Frank Werneke. The country employees have kept the shop running in the past few months. But the negotiator of the federal states, Lower Saxony’s finance minister Reinhold Hilbers (CDU), has already made it clear that the federal states see little scope for salary increases due to the high total debt level, which was around 640 billion euros at the end of the first quarter. This indicates a tough collective bargaining round that begins on October 8th. After the train drivers of the Deutsche Bahn had last stopped their work for more money, the next wage dispute is now looming. The federal state wage round for warning strikes at daycare centers, schools and university hospitals had already led in 2019.
According to Werneke, the most recent collective bargaining is “about securing purchasing power”. He referred to the sharp rise in the inflation rate of 3.8 percent in July – the highest level in 28 years. Since the high energy and food prices mainly affect low income groups, a disproportionate strengthening is necessary.
Recently rather moderate degrees
For years, the unions hadn’t had to pay attention to the rate of price increases. Since the increases were minimal, they were based on the development of the economy, employment and productivity. So also in the Corona crisis. When the economy was down, employers argued that sales and earnings fell and the trade unionists were reluctant to make high demands. In addition, it was hardly possible to call for larger meetings, warning strikes or even industrial disputes during the pandemic. All of this resulted in rather moderate degrees.
For the first time in 10 years, the adjusted real collective wage development was negative with a minus of 0.2 percent. In other words, prices have recently risen faster than wages. According to the degrees available to date, these climbed by an average of 1.6 percent in 2021, as calculated by the tariff archive of the Institute for Economic and Social Sciences (WSI) of the Hans Böckler Foundation.
“After collective wages rose relatively sharply in 2018 and 2019 with increases of 3.0 and 2.9 percent respectively, the wage disputes since spring 2020 have been dominated by the corona crisis,” said Thorsten Schulten, head of the WSI tariff archive In 2020, the increase was only 2.0 percent. “Given that the pandemic was still very uncertain, this downward trend continued in 2021.” The largest wage dispute in the first half of 2021 was in the metal sector. and electrical industry took place.
Metal and chemical collective bargaining round in the coming year
Meanwhile, a number of collective bargaining negotiations began in the first half of the year and have not yet led to any result. This includes, for example, the retail trade, which is the largest collective bargaining industry in Germany after the metal and electrical industry and the public service. Larger disputes are currently also taking place at banks, in the construction industry – and soon also in the public sector.
The salaries paid there are generally not considered to be the trigger for wage-price spirals, as they are paid through debts or taxes. But: In the coming year, the major collective bargaining negotiations with the metal and chemical industry are on the agenda.
“After Corona, companies will have to adjust to a generally more expansive and conflict-prone wage policy,” said Hagen Lesch, tariff expert at the Institute of German Economy in Cologne (IW), recently told Wirtschaftswoche. According to Lesch, the demands of the unions will increase significantly – and with it the willingness to engage in industrial action.
Does inflation continue to rise?
So could there actually be a wage-price spiral at the latest in the coming year? Especially since experts like Bundesbank President Jens Weidmann anticipate that the inflation rate could move towards five percent by the end of the year.
“The rate of inflation is likely to rise a little further in the coming months, particularly because of the base effects of the temporary VAT cut and energy prices,” said Silke Tober, an expert on monetary policy from the union-oriented Institute for Macroeconomics and Business Cycle Research, recently MR. Last but not least, import prices continue to fuel them.
At the moment, however, economists tend not to believe that wages have a greater effect. According to Ifo President Clemens Fuest, the price surge will continue to accelerate. “But for an inflationary wage-price spiral to occur, wages would have to rise significantly faster than has been the case in recent years even when the economic situation has improved,” said Fuest in the “Handelsblatt”. He doesn’t expect that.
Ivan Mlinaric, Managing Director of the Düsseldorf asset manager Quant.Capital Management, also gives the all-clear: If you ignore the actions of politically motivated branch unions, the current collective agreements in this country do not speak in favor of excessive wage demands.
Experts see the catching-up effect
Simon Junker from the German Institute for Economic Research (DIW) also sees no danger of a wage-price spiral. “All in all, there is currently nothing to suggest sustained high inflation rates.” This is a phenomenon this year, which, given the low level of inflation last year, does not turn out to be dramatic. “Taken together, the two corona years 2020/21 will rise by an average of less than two percent – according to the ECB definition, the prices are stable,” emphasizes Junker.
Experts therefore describe the current inflation rate as a kind of catch-up effect. Because last year inflation was lower than ever before. In December 2020, deflationary tendencies were even observed, i.e. falling prices. So-called base effects ensure the current high value. In other words: If prices come from a low level, the rates of increase are high quickly.
Collective bargaining coverage for employees has fallen
Christoph Schröder, income policy researcher at the employer-related Institute of the German Economy (IW), therefore warns against using the recently sharply increased prices as a yardstick for collective bargaining. The current high inflation is mainly due to increased raw material prices and fiscal effects. “It is therefore not an indication of increased profits that could be redistributed,” said Schröder to the “Handelsblatt”.
Better collective agreements affect only about half of Germans anyway. The Verdi union today reminded of the decreasing collective bargaining coverage: There are only 51 percent of employees nationwide, said Chairman Werneke in Berlin. In some sectors, collective bargaining coverage is even significantly lower.
In trade, for example, only 25 percent of employees have collective bargaining protection. “And that after an initial situation in which we still had practically 100 percent collective bargaining coverage at the end of the 1990s,” said Werneke. It looks similarly weak in terms of care.