This year, collective agreements for almost twelve million employees will expire – in important sectors. Experts expect significant wage increases. What does this mean for the financial situation of households?
The fact that the German economy shrank by 0.3 percent last year also has to do with consumer reluctance. Private consumption is significantly influenced by purchasing power – i.e. by nominal wages minus price changes. The so-called real wage therefore determines the earnings that employees actually have.
Due to strong inflation in recent years, real collective wages in Germany have now fallen on average to the level of 2016, as the Economic and Social Sciences Institute (WSI) of the Hans Böckler Foundation recently announced. But what does it exactly mean? And what do experts expect for 2024?
Stagnant real wages last year
Last year, real wages began a slight recovery. In the second quarter, purchasing power increased again for the first time in two years. Not only did the inflation rate decline little by little, income trends also showed an upward trend. According to the WSI, collective wages rose by an average of 5.5 percent in nominal terms over the year as a whole.
Adjusted for price increases of 5.9 percent, real wages still fell by 0.4 percent. “But including the tax and duty savings of the inflation premium, the purchasing power of the employees was almost secured,” said the head of the WSI tariff archive, Thorsten Schulten, in an interview with tagesschau.de.
In addition, the bill only deals with the collectively agreed wages. In Germany, however, according to the Federal Statistical Office (Destatis), only just under half of employees work in a collectively agreed company. Including all others, wages have climbed nominally by six percent, according to Destatis and the Kiel Institute for the World Economy (IfW). Calculated in this way, real wages stagnated last year with a minimal increase of 0.1 percent.
Real plus of around three percent expected
“We currently have the phenomenon that wages in areas not subject to collective agreements have risen significantly faster than in areas subject to collective agreements,” explains Dominik Groll, head of labor market analysis at the IfW tagesschau.de. This is mainly due to the term of the collective agreements of up to two years. “The collective bargaining wages cannot react so quickly to rising prices.”
According to the IfW forecast from December, Groll expects a nominal wage increase of 5.6 percent for the current year. With a presumed inflation rate of between two and three percent, this would result in a real increase of around three percent. Sebastian Link, labor market researcher at the ifo Institute, also believes that real wages will rise sharply again. “In terms of gross wages and salaries per employee, the increase is likely to be around four percent,” he says tagesschau.de upon request.
But are the expected increases sufficient to offset the losses in purchasing power from recent years and stabilize German consumer spending? From 2020 to 2022, real wages fell three times in a row. In 2022 they fell by a whopping four percent – more than ever since the calculations began in 2008.
Purchasing power remains lower than in 2020
“Within two years, the gains from half a decade have been lost,” says WSI expert Schulten. At the end of 2023, the purchasing power of employees was on average six percentage points lower than in 2020. In order to catch up, at least a real wage increase of six percent is necessary. This is not realistic within a year, but rather takes two to three years, says Schulten.
“If our forecast real wage increase of three percent occurs, we would at least have reached the level of 2019 again – i.e. before the Corona and energy crises,” says Groll. At first glance, this is good news. However: “Even then, we would still be around five percent below the level we would probably be at without the crises.”
As a rule, real wages rise in line with labor productivity, which in turn is largely determined by technical progress. Because workers earn more from year to year, it is justified that they earn a higher wage in real terms – usually. “Although the unions pushed through comparatively strong wage increases in 2023, there was still a lot of dissatisfaction,” explains Schulten.
The construction industry in particular has a lot of catching up to do
The head of the WSI tariff archive is once again anticipating an “offensive collective bargaining round” this year. “The average term of collective agreements is currently two years. Those who will soon be negotiating have not yet realized the high wage increases from last year,” says Schulten. Accordingly, there is a lot of catching up to do.
According to the WSI, collective remuneration agreements agreed by DGB unions for almost twelve million employees will end from December 2023 to December 2024. Among other things, the agreements in large sectors such as the chemical industry or the metal and electrical industry expire in June and September respectively. Discussions in the construction industry will also take place shortly. “The construction industry in particular has a big backlog; the last regular collective bargaining agreement there was over two years ago,” emphasizes Schulten.
In addition to the pressure of expectations, people’s willingness to take part in warning strikes also plays an important role in collective bargaining negotiations. “In 2023, the unions were sometimes surprised at how many employees followed their calls. This dynamic will continue,” believes the expert. Even in the chemical industry, which is traditionally considered to be rather reserved, strikes are now planned as a possible option.
Strikes probably less publically effective
However, Schulten emphasizes that a countervailing effect is that economic sectors are affected by the weak economic phase and industrial upheaval. “More and more companies are announcing layoffs, which could have a dampening effect on collective bargaining demands and the willingness to strike in terms of job losses.”
In principle, however, the employee side has gained significant negotiating power due to the shortage of skilled workers, says IfW researcher Groll. “That’s another reason why I expect there to be a lot of strike activity again this year.” However, the consequences of work stoppages in industrial areas or construction are hardly noticeable in the short term for consumers.
“There is always an actual and a perceived strike situation,” adds Schulten. The latter is very high in the transport sector, for example, when trains or buses do not run. “If IG Metall, the largest union, calls for a massive warning strike, far more employees would take to the streets. But it feels completely different for consumers.”