Demands of the trade unions: if the increase in wages fuels inflation

Inflation is a major burden for many employees. Trade unions therefore want to push through high wage increases. Is the danger of a wage-price spiral increasing – like in the 1970s?

The unions are putting pressure on them: letters and parcels remain at the post office. There is a strike at airports. Buses and trains are standing still in many cities. Further work stoppages, also in other areas, are to be expected.

The trade unions are primarily concerned with one thing in the ongoing collective bargaining: The employees should have more money in their pockets, according to Christiane Benner, second chairwoman of IG Metall: “The motives are of course that our colleagues are massively affected by inflation We also said that we also need an increase in wages to stabilize purchasing power. You have to see that too.”

Up to 15 percent more required

The problem: If more and more money has to be spent on food and energy, if services become significantly more expensive, then at the end of the month there is hardly anything left for many people to consume elsewhere. Tariff increases of 15 percent are therefore being demanded at the post office. According to the union, federal and local employees should receive a wage increase of 10.5 percent.

Jörg Krämer, the chief economist at Commerzbank, sees this development with mixed feelings. “We had that in the mid-1970s. At that time, the public sector had very, very high wages above the inflation rate, so that wages drove prices up further. At that time, there was talk of a wage-price spiral.”

Firms pass on higher costs

You have to imagine it like this: companies have to shoulder the wage increases. Many of them will therefore pass on the increased expenses to customers. They in turn have to pay more for goods and services. The result: Your income will be worth less. That pushes each other up. In the next bargaining round, the unions may again demand higher wages – a vicious circle.

Today’s situation can only be compared with the 1970s to a limited extent. At that time, the high wage increases in particular made a significant contribution to the development of inflation. Today it is more the high energy and food prices.

Skills shortage as a factor

But Hagen Lesch, collective bargaining expert at the German Economic Institute, believes that it is quite realistic that there could be a wage-price spiral. In his opinion, this is only partially related to the ongoing collective bargaining.

“Beyond the collective bargaining policy, there is of course a lot of wage policy pressure,” says Lesch. “This is not only related to inflation, but also to the shortage of workers and skilled workers. In this respect, we will have a wage policy in the next few years that will drive up prices overall. This is simply due to the situation on the labor market.”

There is already a shortage of skilled workers everywhere – not only here with us, but also in other European countries, for example in the Netherlands or France. Many entrepreneurs complain that production is progressing slowly. And there is no improvement in sight, according to the economist Krämer. “And whether they’re in the employers’ association or not, they become willing to compromise, just to keep staff or to attract new ones if they want to grow.”

Does the state facilitate an agreement?

There are several ways to compensate for inflation. The collective bargaining partners can negotiate higher wages or one-off payments. In addition, the federal government has created the possibility of one-off payments that are exempt from tax.

“Basically, a third party comes in, namely the state, which pays something,” says the expert. “And that can make it easier for employers and employees to come to an agreement.” Whether the state can prevent a wage-price spiral in this way is an open-ended experiment.