MNI ANALYSIS: German Wages Could Disappoint Wage Round Hopes

By Chris Mc Innes

     BERLIN (MNI) - Wage growth in Germany is expected to accelerate this year,

according to government forecasts published last month, but they could still

fall below expected levels as the impact of mass awards diminishes. 

     Despite wages seemingly gathering steam, early worker celebrations might be

overblown. Indeed, wage agreements at branch and company level now only cover

about 60% of employees, down from 75% twenty years ago and the impact of these

wage rounds on overall wage growth might therefore be more subdued.

     The German government expects wages to grow 2.9% in 2018, up from 2.6% in

2017, driven by the increasing tightness in the labour market. This has already

translated into generous wage settlements in the metal and public sectors since

the start of the year, which observers have termed "inflation busting."

     These wage agreements have normally helped set the bar for the subsequent

wage negotiations, especially the last two significant wage rounds of the year

in the construction and chemicals industry, which together represent almost 1.5

million workers.

     Wage negotiations in the construction industry have gone to arbitration,

which started on Monday, and MNI understands that the unions are quietly

confident they will be able to get a deal in line with other agreements signed

this year, given that the industry is booming and suffering from acute worker

shortages.

     The Bundesbank said as much in its last monthly report that the growth of

wages covered by agreements and overall wages are no longer as tightly

correlated as in the past, when they highlighted the falling coverage of wage

agreements as a possible explanation for the recent bout of low wage growth.

     The falling number of settlements now encompassed by the negotiated mass

agreements could dampen the upswing in wages and thus keep a lid on inflation in

the Eurozone's largest economy, potentially delaying the European Central Bank's

monetary policy normalisation plans.

     --STILL ON BUBA RADAR

     Although wage agreements might no longer be as influential, MNI understands

that the Bundesbank still considers them as a reliable indicators for the

overall direction of wage growth.

     That is because wage agreements still influence roughly 20% of wages not

covered by an agreement, according to research by the WSI Institute. As a

result, roughly 80% of wages in Germany are covered either directly or

indirectly by wage agreements.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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