Pay Raises for German Workers

The I.G. Metall union and employers agreed to a 4.3% pay rise, a compromise between the union's demand of a 6.5% raise and management's offer of a 2.6% raise. It was also the largest pay rise since the 5.4% negotiated, twenty years ago in 1992. Continued high employment and declining unemployment strengthened the hand of the union. The decline in the unemployment rate to 5.6% in Germany, in contrast to the rising trend in other Euro Area countries is illustrated in the first chart. Even the finance minister, Wolfgang Schauble, recently exhorted employers to increase wages to make up for the restraint of the past decade. In addition to the 3.6 million I. G. Metall workers, 2 million public sector workers recently negotiated a 6,3 % pay increase over 24 months. In all, it is estimated that the wages of some 9 million workers or about 22% of those employed are up for negotiations this year.

This looks like a substantial increase in money in the pockets of German workers this year. It could lead to higher consumption not only of domestic goods in Germany, but also of imports from other countries. A small, but positive bright spot for the troubled Euro Area.