analysis
Status: 03/02/2023 1:40 p.m
Tax-free special payments play an important role in collective bargaining, they bring relief to employees quickly. In the long term, however, they have to accept significant income losses.
Like many people in Germany, Kai Schaub feels the persistently high inflation almost every day: when he fills up the tank, in the supermarket, when he pays the electricity deduction. It was only at the beginning of this year that his energy supplier raised the monthly advance payment for electricity from 130 euros to 170 euros, an increase of almost 31 percent. “Fuel costs, groceries, energy, all of that tears a big hole in the household budget,” he says.
Schaub is a deliverer at Deutsche Post and lives in Büdingen in Hesse. His wife works as a kindergarten teacher and one of his two children recently started an apprenticeship. The 47-year-old has been with Swiss Post for ten years and currently earns 2,743 euros gross per month.
Wages vs. Inflation – How much we can afford
Daniel Hoh, HR, plus minus 9:45 p.m., March 1, 2023
Verdi calls for a substantial wage increase
As a ver.di member, he supports the demands of his union: a wage increase of 15 percent is needed, just for this year. Collective bargaining with the postal group has long since collapsed, and ballots on an indefinite strike will run until next week. The offer from the post office is not enough for ver.di.
The group offers its employees a combination of a permanent wage increase and a special payment: next year, two increases of 150 euros and 190 euros, plus a tax-free inflation premium of 3,000 euros, which would be paid out in several tranches starting this year. Duration of the collective agreement: Two years. “3,000 euros sounds like a lot at first,” says Kai Schaub. “But at some point the 3,000 euros will be gone from the pay slip, you have to keep that in mind.”
Inflation money as a crisis joker
The postal worker alludes to a problem that ver.di chairman Frank Werneke recently put in a nutshell: “A one-time payment is not sustainable. The prices remain high even when the bonuses have long since stopped having an effect.”
The so-called inflation compensation premium is part of the third relief package that the federal government launched last autumn. Companies are allowed to transfer up to 3,000 euros per year to each of their employees, free of taxes and duties. So employers don’t pay any social security contributions on it, just as little as the employees – they receive the special payment net as well as gross. The regulation applies until the end of 2024.
Bonus brings fast and noticeable relief
The economist Reinhard Bispinck, who used to run the WSI collective bargaining archive of the Hans Böckler Foundation, which is close to the trade union, first refers to the advantages of the bonus. Especially low earners, who suffered particularly from the high inflation, would be relieved significantly more than high earners. “It therefore makes sense to provide such inflation money with a uniform amount and not to do it in stages, so that this relief effect may not occur in the lower income groups,” he says.
However, the economist does not want to hide the major disadvantage of special payments: “In the period in which the inflation money is paid, the tariff increase is usually lower”. Because trade unions and employers always negotiate a new collective agreement as a package. Means: The higher the special payment capped at 3000 euros, the lower the additional percentage increase.
Several thousand euros are lost in the long term
In a model calculation, Reinhard Bispinck compared what that means in concrete terms in euros. The starting point is two employees, each with a gross annual salary of 48,000 euros, an average salary in Germany. Both are in different collective agreements. In the first case example, the person receives a tax-free one-time payment of 3,000 euros in the first year of the tariff, and a wage increase of four percent in the second year.
The other employee does not receive an inflation premium, but receives a salary increase of four percent in both years. While person 1 earns more in the first year because of the high one-off payment, the picture reverses from the second year. From then on, person 2 earns more. “We have a kind of compound interest effect,” says Bispinck. “The waiver of a tariff increase in the first year grows through the years, so to speak, and at the end you have an increasing amount of the loss in the tariff payment”. In a period of five years, the first employee earns almost 7400 euros less. The tax-free one-off payment is therefore not worthwhile in the long term.
Call for inflation money in the workforce
In past collective bargaining, union representatives were well aware of the problem. Take the chemical industry as an example: the first nationwide wage agreement with the new inflation allowance was signed in October. “In the long term, it is of course dangerous to only get involved with such components,” says Ralf Sikorski, then the negotiator for the Industrial Union for Mining, Chemicals and Energy (IGBCE). “Of course, that leads to a loss of purchasing power. One-time payments don’t have children, they are paid once and are then lost in compound interest,” says Sikorski.
The employer side, in turn, felt the pressure from the workforce to make full use of the inflation money. “If we hadn’t offered it in the collective bargaining, the demands would have come to the companies,” says Hans-Peter Stiller, general manager of the Federal Chemical Employers’ Association (BAVC). “We would not have achieved pacification at the operational level.” In the end, both sides agreed on a combination: twice 1,500 euros in inflation money and an additional two wage increases of 3.25 percent by mid-2024.
Special payments against the wage-price spiral
While special payments cost employees purchasing power in the long term, they can be an economic gain. That is when it comes to keeping inflation in check. Because with high percentage salary increases, some economists see the danger of a wage-price spiral. The Bundesbank, for example, writes in its current monthly report from February: “The effects of the high rates of price increases are already clearly visible in the most recent collective bargaining agreements. Noticeable second-round effects on prices are foreseeable.”
Friedrich Heinemann, an economist at the Leibniz Center for European Economic Research (ZEW) in Mannheim, also fears that wage agreements that are (too) high could fuel inflation: “It’s enough if wages increase by four or five percent. That would have again an effect and would keep the inflation rate well above two percent.”
Even if employees lose income in the long term as a result of the inflation premium – in the end they may be rewarded again with slightly lower inflation.