The purchasing power of Germans continued to decline in the first half of the year despite rising wages. Real wages fell by 1.7 percent. There is a chance of improvement in the second half of the year.
According to a study, pay scale employees lost purchasing power again in the first half of the year, despite noticeably rising wages in Germany.
Their wages increased by an average of 5.6 percent, twice as much as in 2022, as the wage archive of the trade union-related Institute for Economic and Social Sciences (WSI) announced today for its evaluation.
However, consumer prices rose even more significantly at around 7.4 percent. This results in a drop in real wages of 1.7 percent.
Prospects of improvement in the second half of the year
“However, a sharp drop in inflation can be expected in the second half of 2023, so that at the end of the year a much more positive collective bargaining balance is foreseeable, in which real wage losses will be more limited,” said Thorsten Schulten, head of the collective bargaining archive.
In view of the deteriorating economic prospects, there should be no further slump in private consumption. It is therefore important that “the collective wage dynamics continue and that losses in purchasing power are avoided as far as possible”.
tariff increases for millions of employees
According to the study, wage increases for around 9.2 million employees that were agreed in 2022 or earlier will take effect this year. This also includes large sectors such as the metal and electrical industry or the chemical industry.
In addition, new collective agreements were reached for a further 4.4 million employees in the first half of 2023, including Deutsche Post AG and the public sector (federal and municipal).
At an average of 6.6 percent, new contracts increased more than the 5.1 percent of the tariffs agreed in 2022. Overall, according to the study, a collective agreement applies to around half of the approximately 34 million employees in Germany who are subject to social security contributions.
Inflation Compensation Premiums to strengthen net wages
So-called inflation compensation premiums were also agreed in most wage agreements. These bonuses are tax and duty free and result in higher net wages for employees and lower labor costs for companies. The amount varies between 1,000 and 3,000 euros depending on the tariff area.
Since the tax and duty savings in the case of the inflation adjustment premiums vary greatly, they are only considered as gross one-off payments in the calculations for the development of standard wages.
The “gross for net” effect and its implications
If the “gross-for-net” effect is taken into account, the wage increases in some sectors are significantly higher. For example, the standard wages in the public sector (federal and municipal) will increase by 9.8 percent, taking into account tax and duty savings, without only 6.8 percent.
In 2023, the inflation compensation premiums “will help to secure real wages in many collective bargaining sectors,” said Schulten. “Since these are one-off payments, they will have a strong dampening effect on wage development when they expire in the following years.”