Because prices are rising sharply, many Germans are currently feeling poorer than usual. Now, for the first time, there is hard evidence that this perception is correct: collective wages will rise by an average of 1.7 percent this year, reports the Economic and Social Science Institute (WSI). Given that annual inflation is expected to be around three percent, the price-adjusted income will decrease significantly. If you ignore the tax exemption of the corona premiums that have been paid many times, the real wage is 1.4 percent less on average – Germans have not experienced anything like this for decades.
With the extraordinary loss of purchasing power, two things come together. On the one hand, the corona crisis hit many companies. In order not to worsen the situation, the unions held back in collective bargaining. IG Metall, for example, only agreed a corona premium and special payments for four million employees. Before deducting inflation, collective wages rose by 1.7 percent across Germany, less than in previous years – between 2012 and 2019, nominal wages had always risen by between 2.4 and 3.1 percent.
At the same time, prices are skyrocketing, mainly due to the special effects of the pandemic. This year, the usual VAT, which will be temporarily reduced in 2020, will apply again. In addition, like after other economic crises, companies and consumers ask much more. Manufacturers who have scaled back their production cannot keep up at first. Energy prices are rising particularly sharply. Transport problems exacerbate the situation. In November consumer prices were 5.2 percent higher than a year earlier. The annual average should be around three percent.
Most economists consider this high inflation to be temporary because of the special effects. They expect only two to 2.5 percent for 2022, then less. But this year the high inflation is having an effect – and is reducing the income of Germans when shopping.
In reality, however, the real wage loss is likely to be less than 1.4 percent. Because corona premiums were agreed in many collective agreements. In the metal industry and in construction this is 500 euros, for employees in the federal states there will soon be 1,300 euros. The fact that these premiums are tax and duty-free for the employee reduces the loss of real wages somewhat. Even so, there remains an extraordinary loss. In the past 20 years there have only been three real wage losses, and at 0.1 percent each, they were lower than this year. In the 2010s, real wages rose by an average of 1.4 percent each year.
Those who are not paid according to the tariff have an even bigger problem due to inflation
The WSI calculation only includes the around 20 million employees who are paid according to the tariff. But it is an indicator of general wage developments. Those who are not paid according to a union-negotiated rate often earn less – so inflation is likely to have an even bigger problem.
Researchers fear that the unions will react to the real wage shock in the coming year and implement drastic wage increases. In the 1970s there were wage-price spirals in which inflation and, in some cases, double-digit wage increases rocked each other up. The statements made by the unions so far do not, however, fuel this concern. For example, IG BCE is calling for the third-largest chemical industry to be at least compensated for inflation. However, she wants to base her exact demand on the then current price increase in spring 2022 – and not on the high inflation this year.
“So far, there is no basis in the tariff data for the specter of a wage-price spiral, which some have painted on the wall,” explains Thorsten Schulten from the union-related WSI. But he also says: “If we have high inflation rates in Germany for a few years, the unions have to take that into account.”