German workers have been in the strongest position for 30 years

A HIGHLY QUALIFIED manpower, harmonious labor relations and restrained wage growth: all of these have long been the basis of Germany’s economic success. But, as the recovery from the ravages of covid-19 continues, all three pillars appear wobbly. The shortage of skilled labor is worsening. Wages are rising amid rising inflation. And some disgruntled unions are even threatening to strike.

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Average wages in Germany rose 5.5% in the second quarter compared to the previous year. This may in part reflect a base effect: wages fell 4% over the same period in 2020, when the economic shock of the pandemic struck. Yet workers are now in their strongest position for 30 years, says Gabriel Felbermayr of the Kiel Institute for the World Economy, a think tank. Bosses are chasing qualified personnel in particular. Automation and migration cannot fill the gap, says Carsten Brzeski of ING, a bank.

The unions do not hesitate to use their increased power. “We immediately demand a 4.5% wage increase for wood and plastics workers, as well as additional early retirement funds,” said Frederic Striegler of IG Metall, the largest union in Germany. Industry bosses are proposing an increase of just 1.2% next year and 1.3% the following year. This is not enough, says Mr Striegler, because it will not compensate workers for inflation. Consumer prices rose 4.1% in September, the highest rate in 28 years (although this partly reflects one-off factors, such as a temporary decrease in the value-added tax in 2020).

Unions preferred preserving jobs to securing wage increases and therefore tended to come to terms with bosses who could not afford to pay higher wages. Things are tense now. Workers at Carthago, a motorhome maker, went on strike this week, demanding a fair share of an increase in profits due to high demand for caravans. Further strikes are planned at other caravan and furniture manufacturers.

The boss of IG Bau, a union representing some 900,000 construction workers, has warned it will call its first national strike in 20 years if employers do not respond to demands for a 5.3% wage hike next year, as well as higher payments for site travel and increased wages for East German construction workers to match western rates. The 16 German states are in talks with the unions over a wage increase for more than 2.3 million public sector workers. The unions are calling for a 5% pay rise, with an increase of at least € 150 ($ 173) per month for the lowest paid and € 300 for healthcare workers.

All in all, an average salary increase of 5% next year seems “realistic”, says Felbermayr. Wages in industries that depend on skilled workers may increase even more. But the increases won’t stoke inflation any further, at least not in the short term, Brzeski said. Even after the increases seen so far this year, real incomes are still below pre-pandemic levels. And most companies in most industries can afford reasonable wage increases, as the state has borne much of the cost of the pandemic. However, staff shortages could well reappear with the aging of the population: the supply of labor is expected to decrease from 2023. Restoring harmony between workers and bosses could be a major challenge.

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This article appeared in the Finance & economics section of the print edition under the title “Hard Bargains”

About Norma Wade

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