interview
Negotiations are underway in the metal and electrical industries about IG Metall’s demand for seven percent more wages. Ifo President Clemens Fuest explains in an interview what results he expects.
tagesschau24: IG Metall justifies its demand for seven percent more wages by saying, among other things, that this could stimulate the economy. If employees were paid more, they would also consume more. Do you think this scenario is realistic?
Clemens Fuest: That is not the crucial point. Because our economic problems are not due to the fact that incomes are too low. Employees even have a real increase in income this year. But we see that the savings rate is increasing. This means that if wages are increased further now, the savings rate would simply continue to increase, and only part of it would go into consumption. Therefore the argument alone is not very convincing.
Most of the added value abroad
tagesschau24: Now the metal industry is an export industry that sells many of its products abroad. Would they actually benefit from more consumption in Germany?
Fuest: That’s added. The metal industry generates 60 percent of its added value abroad. In this respect, more domestic demand does not help companies at all. If wages in the metal industry rise, that does not mean that overall economic demand will also increase.

To person
Clemens Fuest is President of the ifo Institute and Professor of Economics at the LMU Munich. He was previously Professor of Business Taxation at the University of Oxford and headed the Center for Business Taxation. His focus is on finance and labor economics.
tagesschau24: As a rule, wage demands are based on the inflation rate. In Germany it is currently below two percent. How does IG Metall justify this demand of seven percent?
Fuest: IG Metall argues that the industry has had poor wage developments for several years. The real wages, which are important in this context, have fallen by around two percent since 2019. In addition to inflation, what is also important for wages is productivity and the question of how much is produced by employees. And that has also fallen by around two percent overall in recent years.
IG Metall knows very well that in times of stagnation, when things are going badly, you can’t get by with very high wage demands. The required seven percent corresponds to real wage increases of five percent, with zero growth or even contraction of the economy. That’s not in it. And the metal industry is not doing better than the rest of the economy, but rather worse. That’s why this requirement simply doesn’t fit the times at all.
“Companies must be sufficiently profitable”
tagesschau24: It is not unusual for unions to enter into such discussions with disproportionately high demands. What request do you think would have been appropriate? And where is the ideal place to reach an agreement?
Fuest: I think the solution will be well below the required seven percent. I could also imagine that a decision would be made not to significantly increase current wages, but rather to pay out one-off payments and, to a certain extent, let the employees share in the profits of the past.
tagesschau24: Many companies, especially DAX companies like VW, have made billions in profits in recent years. Is the situation of companies so tense that they would not be able to cope with higher wages of seven percent?
Fuest: First of all, it must be said that the employees also benefited from this good profit situation. There were also bonus payments at VW. So it’s not like they didn’t get anything out of it. But economic activity is always future-oriented. In this respect, these past earnings are something that no longer helps us today and plays no role in wage negotiations. We now have to look to the future; we need companies that are sufficiently profitable. Otherwise they will migrate.
Is production moving abroad?
tagesschau24: The situation for companies is tense. To what extent could high wage demands further aggravate the situation for companies?
Fuest: If wages continue to rise, companies will have to think about how they can absorb this. Many will respond by moving production abroad and shutting down production here at home. And that would be the wrong direction. We are already seeing that corporate investments in Germany are falling. With wage increases of seven percent, this trend would accelerate.
In general, the union would have to differentiate more and look at which areas there are currently labor shortages. Because in these areas it is appropriate for wages to rise sharply. In other areas, such as the auto industry, where layoffs are currently threatened, one must be more careful.
“Everyone loses in strikes”
tagesschau24: Last week VW and IG Metall met. So far we haven’t been able to come to an agreement. What’s next? Could there be a threat of strikes?
Fuest: Of course, strikes are always the worst outcome because everyone loses. That would only increase companies’ problems because factories in Germany would be even more likely to close. So the talks will be about avoiding strikes. I think it’s part of the rituals of collective bargaining that you first meet, you don’t immediately agree, you discuss for a longer time and try to present your position.
Fortunately, in Germany we have a tradition among the unions and the collective bargaining partners that they ultimately try to avoid strikes. In this respect, I rely on common sense. I think the unions have proven in the past that they understand the overall economic situation in difficult situations.
Anne-Catherine Beck, ARD financial editor, asked the questions. The interview was shortened and edited for the written version.