German pay day

Labor unions across Germany are pressing for annual wage increases as high as 6 percent, hoping to take advantage of the current economic boom in the country. Last quarter's sizzling 9 percent economic growth, at an annualized rate, has given them plenty of ammunition to ask for more money after years of restraint.

Over the past 10 years, wages in Germany have risen less than in most European Union countries, according to statistics released this week by the German Federal Statistical Office. Wages in the country's private sector, for instance, increased by 21.8 percent on average from early 2000 to the first quarter of 2010. By comparison, the EU as a whole showed an average increase of 35.5 percent.

Real wages have fallen

In fact, real wages – adjusted for inflation – actually fell by 0.8 percent from 2000 to 2008 and by 0.2 percent in 2009, according to the Economic Research Institute of the Hans Boeckler Foundation. Germany is the only major European economy where real wages have fallen.

For the past several years, German workers kept hearing from employers reasons why higher wages weren't a talking point: the global financial and economic crisis, fierce competition from China, and a dismal consumer climate in the United States, among others.

During the peak of the economic crisis, German workers refrained from demanding higher pay checks to keep their jobs. Many participated in state-subsidized short-time working programs, called Kurzarbeit, or agreed to forego their holiday bonus payouts.

Workers at German carmaker Daimler, for instance, not only switched to short-time employment but also agreed to postpone a pay hike and a profit-sharing bonus. Few workers in Europe have shown such a willingness to forego pay as their counterparts in Germany.

Upward economic spiral

Now German workers see a favorable negotiating window. Demand for their skills is up; unemployment has fallen for 14 consecutive months, with the jobless rate back to its pre-recession level of 7.6 percent - the lowest since 1992. And even though exports have dropped slightly, economists still see Germany on an upward economic spiral

German labor unions are therefore making demands. For instance, the German metals and engineering union, IG Metall, is seeking a 6 percent wage rise for its 85,000 members. Last year, the union demanded 4.5 percent and settled for an increase of 2.0 percent plus a one-off payment of 350 euros.

Even some government officials believe German workers deserve a raise. German Labor Minister Ursula von der Leyen told the German media that she sympathized with workers' demands for more pay and believed they should "benefit" from the economic boom.

Dampened consumption but saved jobs

"Without a doubt, Germany has shown the greatest wage restraint in Europe," Hagen Lesch, an economist with the Cologne Institute for Economic Research, told Deutsche Welle. "We may have dampened consumption somewhat but we have saved jobs."

Even economists who are generally skeptical of wage increases have shown themselves to be generally receptive of arguments for higher pay.

"Germany's second quarter was incredible and although the next two quarters clearly won't look as good, we still project overall strong growth for the year," Christian Melzer, an economist with Dekabank, told Deutsche Welle. "I see some breathing space; wage increases of 2 to 2.5 percent won't hurt the economy. And they would help spur consumption."

Most economists agree German industry leaders should, however, show moderation when increasing wages and salaries. "The economic crisis has had a huge impact on many companies – their cash flows are dry and need to be built up," said Volker Treier, chief economist at the German Chambers of Commerce (DIHK).

Critics of the German economic model – France, perhaps, the most outspoken – say the intense focus on exports, tight labor cost controls and high rates of saving comes at the expense of others in the region. They believe weaker EU members could benefit from a less competitive Germany that imports more foreign goods.

But German experts struggle to swallow that argument. "We used to be called 'The Sick Man of Europe' because of our high wages, among other things," Treier told Deutsche Welle. "We have embraced competition, and because of us, the euro has stayed out of big trouble."

Author: John Blau
Editor: Sam Edmonds