Compared to other industrialized countries, the profits of companies in Germany have increased significantly more. According to the OECD, this opens up greater scope for wage increases.
According to a study, corporate profits in Germany have risen more sharply in recent years than in many other industrialized countries. Since the end of 2019, i.e. the last quarter before the outbreak of the corona pandemic, so-called unit profits have increased by 24 percent, the Organization for Economic Cooperation and Development (OECD) announced today. Unit labor costs then grew much more slowly at 13 percent. Unit profit is the difference between revenue and unit cost, while labor cost for a given unit is also called unit labor cost.
The OECD is an international organization with 38 member countries. According to the OECD, the aim is to design policies that promote prosperity, equality, opportunities and well-being for all.
Reference to “greed inflation”?
“The increase in unit profits in Germany is above the OECD average, while the increase in unit labor costs is below it,” concludes the study’s authors. “The gap between the two values is significantly larger in Germany than in France, Italy, Spain and the United Kingdom.” One could interpret this as an indication of the so-called greed inflation. This is what is called the phenomenon in which companies add more to the final price than the increased costs would justify.
As a result, this could even have positive consequences for employees because it is an argument for more generous wage increases: “In many OECD countries, profits have risen faster than labor costs, which is a major factor in price pressure,” said OECD analyst Anja Meierkord of the news agency Reuters on inflation.
This opens up scope to absorb further wage increases and thus cushion the loss of purchasing power, at least for low earners, without creating significant additional inflationary pressure. “This also applies to Germany,” said Meierkord. A fair distribution of inflation costs could prevent a further increase in inequality.
Lagarde speaks up
The ECB also recently commented on the subject of greed inflation, but not specifically in relation to Germany. Speaking to the European Parliament’s Economic and Monetary Affairs Committee, ECB President Christine Lagarde said most companies had “taken advantage of passing the higher costs entirely on to customers.” And some of them would have raised prices beyond mere cost pressure.
When it comes to food prices, the topic could also still be relevant. According to the inflation data from Germany, food price increases in June were again very high at 13.7 percent. Food therefore remains the strongest price driver of all goods sectors.
The credit insurer Allianz Trade examined the European market for the food sector and, in a study in April of this year, came to the conclusion that the pursuit of profits in Germany is particularly high and cannot be explained by traditional cost drivers. “There seem to be increasing signs of profit-taking and insufficient competition,” said Allianz Trade expert Andy Jobst.
real wages fall
The OECD has also looked at the impact of increased consumer prices on workers. According to the OECD, the accelerated inflation after the Russian attack on Ukraine has caused real wages to fall in almost all of the 34 member countries surveyed.
In Germany, they fell by 3.3 percent in the first quarter of this year compared to the same period last year. Over the three years since the pandemic began, from late 2019 to late 2022, real wages have fallen by 3.2 percent. The OECD average is 2.2 percent.
In the case of low-income earners, this was cushioned somewhat by the increase in the minimum wage to twelve euros per hour last October. Adjusted for inflation (real), this rose by 12.4 percent compared with the beginning of 2022, more significantly than in most other OECD countries.