MNI INTERVIEW: Robust German Pay Growth Set To Continue- Union

German workers will continue to try to regain lost purchasing power by negotiating strong wage increases, a senior official at the country’s largest union told MNI, though one-off payments and demands for a shorter working week will play a role as exporters grapple with declining global demand.

“The general understanding is that as long as inflation is as high as it is, it is likely we might have, like in the last round, a combination of general increases and then one-off payments,” Thorben Albrecht, Policy Director at IG Metall, said in an interview in the run-up to its annual conference. “I think that this combination will stay for another year or two, especially as one-off payments also benefit lower income groups better than just a percentage increase.”

While IG Metall is asking for an 8.5% pay hike over 12 months for steelworkers - seen as a benchmark - and for an eventual move to a four-day week as costly plans to green the industry come into effect, the outcomes of next year's pay negotiations for other sectors represented by the union will in part depend on how different industries are performing, Albrecht said.

The call for the hike for steelworkers came as the industry was doing well, he noted.

“We know that there will be a mid-term development when production changes from coal to hydrogen, so there we have this demand for 8.5% plus reduction of working time, but with the reduction of working time being a midterm objective” he said.

VARIATION ACROSS INDUSTRIES

Last November the union secured pay rises for nearly four million workers of 5.2% and 3.3% for 2023 and 2024, respectively, alongside two lump-sum payments of EUR1,500. At the time, inflation was running at 11.6%.

While Germany’s headline inflation fell from 6.1% in August to 4.5% in September, with core inflation dropping nearly one percentage point to 4.6% over the same period, the Bundesbank expects “robust wage growth” to keep the average rate of price increases at over 6% for the year, “well above” above the European Central Bank’s 2% target.

Not all industries represented by IG Metall are doing equally well, Albrecht conceded. Furniture manufacturers have experienced a significant slowdown in recent months, though more sectors, such as those producing plastic parts used in car production, have fared better, he noted.

He pushed back at suggestions that higher unit labour costs in general could hurt competitiveness, at a time when demand for German products is weakening in historically crucial markets. Instead, Germany should focus on boosting innovation and productivity.

“We’ve always argued that Germany cannot be competitive through labour costs, because they are high and have been all through the success story of Germany being an export champion,“ he said.

“We do see that demand in parts of the world, especially in China and parts of Asia, is going down, which is of course troublesome for the economy in Germany. But it's not so much that we are losing out against competitors; it’s just that the market itself is shrinking, or at least not growing as fast as it did in the past.”

PUBLIC EXPENDITURE

While higher wages are needed to boost sagging levels of German household consumption, with GDP expected to shrink by 0.4% this year before returning to growth in 2024, Albrecht said restraints on public expenditure were the main driver behind contraction.

German industry is unlikely to face energy supply constraints this winter, Albrecht said, although there may be some slight variation in prices, especially if the weather is extremely cold.

Labour shortages - in part caused by demographic changes - are not yet a key factor behind faltering growth, he said, though they could yet be a major stumbling block in years ahead (See MNI INTERVIEW: Germany Faces 10-15Y Labour Shortfall -Wise Man).

“Unemployment is at least not going down any longer, it’s more or less stabilising, and nor is labour demand growing, because of the economic situation or at the moment. So it's not a major short-term factor, but it's a long-term problem for Germany.”