Blog post

Is low inflation translating into lower wage growth in Germany already?

Low inflation in Germany is a big concern not just because of its importance for the euro area aggregate but also because it makes relative price adju

Publishing date
08 January 2015
Authors
Allison Mandra

Persistently low inflation across the euro-zone has motivated calls for more action from the ECB. Low inflation in Germany is a big concern not just because of its importance for the euro area aggregate but also because it makes relative price adjustment for the euro area periphery harder. In this blog post, we look at recent wage growth in Germany and scheduled pay increases determined through collective bargaining agreements for 2015.

Given that inflation rates have fallen substantially and German headline inflation was 0.2 percent in December, due in part to the low oil prices, a big question is to what extent, if at all, wage negotiations will factor in lower inflation. IG Metall, one of the main German unions, in its demands for a 5.5 percent increase, still expects 2 percent inflation. Meanwhile, in response to the chemical industry’s demand for an increase of 4-5 percent in the negotiations upcoming at the end of January, the head of the employer association, BAVC, noted that with low productivity and inflation in the zero-point area, such an increase would be unlikely.

In the table below, we show the agreements that have already been made for 2015. So far, the picture points to lower numbers than in 2014, potentially suggesting that the low inflation rates have been taken into account already.

Collectively bargained wage growth remains strongest in the construction industry with increases of 2.6 percent in Western Germany and 3.3 percent in Eastern Germany in 2015, although this is down from 3.1 percent growth in Western Germany and 3.8 percent growth in Eastern Germany in 2014. Also worth noting is a decline from 3 percent growth in 2012 in the metal industry to 2.2 percent in 2014. Though the printing industry, which experienced the lowest relative growth in both 2012 and 2013, saw a sizeable increase to 3 percent in 2014, growth in 2015 has tempered to 1 percent . Along with the metal and chemical sectors, negotiations for the retail, civil service, insurance, and wholesale & external trade sectors are set to take place throughout the winter and spring.

Nominal wage growth in Germany was 2.5 percent in 2012, 1.9 percent in 2013, and 2.8 percent in 2014, which was above the Euro area average for all years. In terms of real wages, growth in Germany was above euro area average only in 2014.[1]

RTEmagicC_wage-growth-germany_04.png

[1] Using AMECO nominal compensation per employee for the total economy and HICP

 

About the authors

  • Allison Mandra

    Allison Mandra is from the United States. She was an intern at Bruegel from November 2014 until June 2015. She obtained her Master’s in Macroeconomic Policy and Financial Markets from the Barcelona Graduate School of Economics, where she wrote a thesis on whether financial analysts’ price targets for public equities are concordant with the use of rational expectations in asset-pricing models.

    She holds a Bachelor’s degree in Economics from Bates College in the United States, and wrote her undergraduate thesis on the instabilities and inequities of the current international reserve system, including an analysis of proposed avenues for reform. During her studies she also spent a semester at Cambridge University focusing on theories of industrial organization.

    Allison’s research interests include macroeconomics and international financial stability.

Related content

Blog post

German wage negotiations

In the beginning of January I wrote about the impact of persistently low inflation on collectively bargained wages in Germany. Concluded negotiations

Allison Mandra