High wage settlements: “No wage-price spiral yet”

Status: 11/18/2022 2:29 p.m

Tough negotiations and massive warning strikes – now the metallers get 8.5 percent more wages and a one-off payment. But high wage agreements also harbor the risk of wage-price spirals. What do economists say about this?

In view of the high inflation rates, employers and trade unions have agreed on a strong wage increase in the metal and electrical industry. The approximately 3.9 million employees of the largest German industry will receive 8.5 percent more money and a one-off payment of 3,000 euros net in two steps. “The collective bargaining agreement is a good result,” commented the President of the Munich Ifo Institute, Clemens Fuest. “The permanent wage increases of a good four percent per year will not trigger a wage-price spiral.” It is particularly important that longer strikes could be averted with the agreement. This would have exacerbated the crisis.

The tax and duty-free one-time payment of 3,000 euros also ensures that disposable income increased noticeably, according to Fuest. “In view of the high level of uncertainty about further economic development, it makes sense to use one-off payments instead of relying solely on permanent wage increases.” According to Fuest, this should also be possible in many other areas of the economy.

“No all-clear for monetary policy”

Carsten Brzeski, chief economist at ING, emphasizes: “Traditionally, German wage agreements in the euro zone are given a lot of attention.” The collective bargaining agreement that has now been reached will not be sufficient to fully compensate for the loss of purchasing power caused by higher inflation. “But it mitigates the damage.” For the European Central Bank (ECB), this means that the second-round effects will remain subdued.

Stefan Kooths from the Kiel Institute for the World Economy (IfW) is not quite so optimistic: “Nevertheless, this is not an all-clear for monetary policy. Uncertainty about the further development of inflation also means that confidence in price stability has already suffered.”

“It’s ambivalent for the ECB”

Holger Schmieding, chief economist at Berenberg Bank, emphasizes: “8.5 percent plus a special payment is high, but the term of more than two years makes it bearable. For the ECB, that’s ambivalent.” On the one hand there is considerable wage pressure in the coming year, on the other hand there is no wage-price spiral, since the high increase of 5.2 percent in June 2023 is followed by a more tolerable increase of 3.3 percent in May 2024. “Wage pressure decreases again over time. Humps instead of spirals,” says Schmieding.

“Employees have agreed to real wage losses in the foreseeable future, because inflation in the current and next year and perhaps also in 2024 is likely to be higher than the agreements now agreed,” explained Jens-Oliver Niklasch from LBBW. “In principle, however, the collective agreement agreed on a burden sharing, which should benefit both sides in the long term as a contribution to securing the location.” Of course, it will only be possible to say who bears the greater part of the burden after the fact. “At the moment, the trade unions seem to have made the slightly better cut,” says Niklasch.

What has been negotiated in other industries

Compared to other sectors, the German metal and electrical industry turned out to be relatively high. A few examples: In the north-west German iron and steel industry, wages and salaries increased by 6.5 percent from August. There was also a lump sum totaling 500 euros for the months of June and July. The collective agreement runs until the end of November 2023.

In the insurance industry there was a lump sum payment for the period from February to August of 550 euros and an additional one-off payment in May 2023. Fees rose by three percent from September. A year later there is another increase of two percent. The collective agreement runs until the end of March 2024.

The clearest increases were in the building cleaning trade, which traditionally also pays very low wages. An increase of 9.7 percent was agreed here from October, and there will be a further 3.2 percent at the beginning of 2024. In addition, the “minimum wage” in the industry was increased in two stages from 11.55 euros per hour to 13.50 euros for the first time January 2024 raised. However, the collective agreement runs until the end of 2024.

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