MNI: German Construction Workers Settle After Latest Pay Round

By Chris Mc Innes

     LONDON (MNI) - Unions and employers in Germany's construction sector on

Saturday agreed on the steepest wage increase negotiated so far this year. The

deal was brokered through arbitration proceedings, which became necessary after

initial talks ended in deadlock in April.

     Confirming MNI's analysis published May 8 (MNI ANALYSIS: German Wages Could

Disappoint Wage Round Hopes), the agreement, which covers over 800,000 workers,

will ensure pay packets in west Germany increase 5.7% and those in east Germany

increase 6.6%. The deal will run 26 months and includes a number of one off

payments.

     The deal comes on the heels of similarly generous wage settlements in the

metal and public sectors, together covering almost 6 million workers. Unions and

employers in the chemicals industry, representing roughly 600,000, are set to

begin wage negotiations in June, the last significant bargaining round of the

year.

     The European Central Bank will doubtlessly welcome the latest wage

settlement as a sign that wage growth is firming in the Eurozone's largest

economy. It remains to be seen if it will translate into higher inflation, which

would give the ECB some much needed headroom to begin monetary policy

normalisation, even as economic growth softens.

     However, it could prove premature to lend too much credence to the idea

that the latest wage agreements will fan inflationary pressures. As highlighted

in MNI's recent analysis, wage agreements have become much less reliable

indicators for overall wage growth as coverage has fallen dramatically in the

last 20 years.

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

--MNI Frankfurt Bureau; +49 69 97782671; email: frankfurt@marketnews.com

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