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 in the banking, construction, printing, and federal state and municipalities sectors at the time pointed to lower wage increases in 2015 than in 2014, as did suggestions from employers’ associations that stagnating productivity and a low inflation environment would factor into the negotiation process. 

By: Date: March 17, 2015 Topic: European Macroeconomics & Governance

In the beginning of January I wrote about the impact of persistently low inflation on collectively bargained wages in Germany. Concluded negotiations in the banking, construction, printing, and federal state and municipalities sectors at the time pointed to lower wage increases in 2015 than in 2014, as did suggestions from employers’ associations that stagnating productivity and a low inflation environment would factor into the negotiation process.

On 24 February 2015, however, IG Metall, the largest union in Germany that often paves the way for wage agreements in the other sectors, concluded their 2015 bargaining round in Baden-Württemberg with a 3.4% wage increase starting in April and a one-off payment of €150 in March for 800,000 workers. The agreement will last for 12 months, and comes after the union first requested a 5.5% increase. IG Metall then reached a subsequent and similar agreement for 115,000 Volkswagen employees, and secured the Baden-Württemberg agreement for the metal and electrical industry across all regions. As seen in the updated table below, the wage hike represents a sizeable increase over the wage agreement from the previous year, which was 2.2% for a period of 8 months.

In the chemical industry, however, wage negotiations are at a standstill after a third round of bargaining came to a close on 12 March with no agreement reached. IG BCE, the union that represents 550,000 chemical workers, is asking for a 4.8% increase over a contract of 12 months. In the latest round of negotiations, the employers’ association countered with a 1.6% increase to last 15 months. Another round of negotiations is set to commence on 26 March, and it will be interesting to see if the chemical industry can follow the metal industry’s lead in securing a sizable wage hike.

The civil service union is also in the midst of bargaining for a 5.5% wage increase with a third round of negotiations that began yesterday, 16 March.  Meanwhile, the Insurance sector, demanding a 5.5% increase as well, begins negotiations on 20 March.

If German collective bargaining agreements can resist the influences of the current low inflation environment (0.1% in February) it would be a boon for a deflation-wary Euro area.  Indeed, last July even the Bundesbank backed the idea of wage developments that would support price stability in the Eurozone, noting that Germany has “close to full employment in a number of sectors and regions, and [is] seeing more and more reports of labour shortages. It is therefore only natural, and also to be welcomed that wages and salaries are rising more strongly than in the days when the German economy was in much poorer shape.”

While higher wages may be a hindrance for Germany’s export-oriented sectors, higher wages in Germany could compliment the ECB’s new efforts to increase inflation. It is also important that German wages grow more strongly to address the imbalances plaguing the Euro area and to support ongoing adjustment in Southern Europe.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

Opinion

A temporary, common fiscal stimulus to answer the mayhem of COVID-19

We are not in normal times and we have to surpass, albeit only for the duration of the COVID-19 shock, the hurdles that did not allow the euro-area to endow itself of a common fiscal policy.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: April 2, 2020
Read article More on this topic More by this author
 

Opinion

Will the economic strategy work?

Because even thriving companies can be killed in a matter of weeks by a recession of the magnitude now confronting the world, advanced-economy governments have reacted in a remarkably similar fashion to the COVID-19 crisis. But extending liquidity lifelines to private businesses and supporting idled workers assumes a short crisis.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: April 1, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

The macroeconomic policy response to the COVID-19 crisis

From the European Stability Mechanism (ESM) to "coronabonds", the EU seems to be struggling to find an appropriate mechanism to tackle the economic crisis created by the COVID-19 pandemic. What is really the best option? And how do we ensure that, once the pandemic is over, we return to sustainable debt levels and competitive economies? This week, Giuseppe Porcaro is joined by Lucrezia Reichlin, professor of Economics at the London Business School, Grégory Claeys and Guntram Wolff to discuss the macroeconomic policy response to the COVID-19 crisis.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 31, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: The macroeconomic policy response to the COVID-19 crisis

Which macroeconomic policy response is the best option to deal with the crisis currently unfolding and will ensure that the recovery will be as quick as possible?

Speakers: Grégory Claeys, Giuseppe Porcaro, Lucrezia Reichlin and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
Read about event
 

Past Event

Past Event

CANCELLED: How adequate is the European toolbox to deal with financial stability risks in a low rate environment?

Bruegel is delighted to welcome the governor of the Central Bank of Ireland, Gabriel Makhlouf. He will deliver a keynote address about how adequate the European toolbox is to tackle financial stability risks in a low rate environment. Following his speech, a panel of experts will further discuss the topic.

Speakers: Gabriel Makhlouf, Guntram B. Wolff and Agnès Bénassy-Quéré Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
Read article More on this topic More by this author
 

Blog Post

The fiscal consequences of the pandemic

The likely economic depression triggered by coronavirus will pose a serious fiscal challenge to some euro-area countries. Given the special circumstances of the pandemic, a European solution is needed, involving more European Central Bank purchases, a significantly increased European Stability Mechanism and some degree of mutualisation of the pandemic-related economic costs.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 30, 2020
Read article Download PDF More on this topic
 

External Publication

Facing the lower bound: what will the ECB do in the next recession?

In responding to the global financial crisis, the ECB has pushed its monetary policy into unchartered territories . Today, it appears increasingly constrained by persistently low interest rates. This paper seeks to understand this challenge and assess whether its toolkit would allow the ECB to weather a European recession.

By: Aliénor Cameron, Grégory Claeys and Maria Demertzis Topic: European Macroeconomics & Governance Date: March 27, 2020
Read article More on this topic
 

Opinion

Europe needs a Covid-19 Recovery Programme

Policymakers need to think long-term and start planning a broad investment scheme to reboot the European economy.

By: Grégory Claeys, Simone Tagliapietra and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 27, 2020
Read article
 

Blog Post

COVID-19 Fiscal response: What are the options for the EU Council?

It is time for the EU Council to make quick progress on the fiscal front and announce something as soon as possible to show that it taken full measure of the severity of the situation.

By: Grégory Claeys and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 26, 2020
Read article More on this topic More by this author
 

Blog Post

What the EU should do and not do on trade in medical equipment

The European Union has introduced export controls on some medical supplies. This was a mistake. It should announce that it is withdrawing the measure, and call on other countries to do the same.

By: André Sapir Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article More on this topic
 

Blog Post

Coronavirus and the politics of a common fiscal instrument

Coronavirus means many European Union countries will soon face major increases in their sovereign debt burdens, exacerbated by the sudden collapse of economic activity. What should the European Union do to address these debt problems?

By: Mark Hallerberg and Stavros Zenios Topic: European Macroeconomics & Governance Date: March 25, 2020
Read article Download PDF More on this topic
 

External Publication

How has the macroeconomic imbalances procedure worked in practice to improve the resilience of the euro area?

This paper shows how the Macroeconomic Imbalances Procedure (MIP) could be streamlined and its underlying conceptual framework clarified. Implementation of the country-specific recommendations is low; their internal consistency is sometimes missing; despite past reforms, the MIP remains largely a countryby-country approach running the risk of aggravating the deflationary bias in the euro area. We recommend to streamline the scoreboard around a few meaningful indicators, involve national macro-prudential and productivity councils, better connect the various recommendations, simplify the language and further involve the Commission into national policy discussions. This document was prepared for the Economic Governance Support Unit at the request of the ECON Committee.

By: Agnès Bénassy-Quéré and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 24, 2020
Load more posts