German Upcoming Wage Negotiations

The German IG Metall Union announced today that it would seek a 6.5% wage rise for its members for the coming year beginning April 1st. While a 6.5% wage increase seems unrealistic in the face of a slowing economy, it should be noted that real wages for the total economy have risen very little over the past two years. In 2010 with wages flat and inflation at 1.2% real wages declined and in 2011, with wages increasing by 2.8% and inflation by 2.5%, real wages increased by only 0.3%. The IG Metall action should be no surprise as wages tend to lag the economic cycle. Profits have been strong and wages have gone nowhere.

The current contract that took effect in May 2010, allowed for a one time payment of 320 Euros and a 2.7% pay increase that began on April, 2011. The 320 Euro payment amounted to about 3.4% of average wages of 9,478 Euros per employee in the calendar year 2010. The distribution of compensation of employees and entrepreneurial income is shown in the attached chart. The shares have been close to their respective means in the aftermath of the 2008-2009 financial crisis whereas, in the past, there were wide swings in the shares. Currently, the compensation share of income is 66.7%, a little below the mean of the past eleven years and the entrepreneurial and investment share is 33.3% a little above its mean of the past eleven years.

Although the economy is slowing the labor market is still tight. With the unemployment rate in December, 2011 at 5.5%, near the record lows of the early '90s, labor is feeling combative.

Germany	Q3 11	Q2 11	Q1 11	Q4 10	Q3 10	Q2 10	Q1 10	Peak	Low	Peak	Mean	Max	Min
Share of National Income								Q1 09	Q1 07	Q1 02
Compensation of Employees	66.7	67.2	66.4	66.3	66.5	66.7	66.7	69.4	62.6	72.3	67.2	72.3	62.6
Entrepreneur & Investment Income	33.3	32.8	33.6	33.7	33.5	33.3	33.3	30.6	37.4	27.7	32.8	37.4	27.7