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German Civil Servants Get Pay Increase in Excess of Inflation
It is not being widely discussed, but we suspect the wage settlement in Germany over the weekend is an important development. The agreement that covers 765k state government workers in Germany, represented by Verdi, reached a two-year deal for a 5.6% wage increase. It includes a retroactive 2.65% from the start of this year and a 2.95% wage increase next year.
The agreement effects 15 German states. Only Hesse, which is not part of the collective agreement, is not formally taking part. A year ago, German municipal workers won a 6.3% wage increase over two years.
German inflation stood at 1.5% in February, the lowest since December 2010. The wage agreement amounts to a real wage increase. There are both domestic and broader implications. Domestically, it may help lift wage more generally and support domestic demand. Retail sales were considerably stronger than expected in January rising 3.1% on the month (consensus was for a 0.9% increase). It was the strongest monthly rise in nearly 5 years.
In addition, the stronger domestic demand may help lift imports, which is the output of other countries. Data released earlier today show a 3.3% rise in Jan imports the strongest in eight months. The consensus forecast was for a 0.7% increase.
The German private sector wage increase also may help weaker economies in the euro area in another way. In the years leading up to the financial crisis, unit labor costs in the periphery (and France) rose markedly compared with Germany. This illustrated diminished competitiveness that was masked by the continued borrowing and the recycling of the North's surplus. The crisis changed this, of course, and most of the periphery, except Italy (and France) have taken measures, especially in the public sector, that has resulted in downward pressure on unit labor costs.
However, there is a political and social limit (even if not known ex ante) on the ability accept higher unemployment and cuts in wages. Structural reforms to boost productivity have not received the attention of that has been shown to the reduction of civil servant work force and cut in their wages and benefits. Some effort to raise what some economists have called the "hyper-competitive" German unit labor costs, can help reduce the pressure on the debtor countries to bear the sole burden of the adjustment.
The ever astute German Chancellor Merkel had tacked more than a year ago in this direction. Her CDU now advocates a "wage floor" (distinguished from a "minimum wage") for those sectors in Germany that are not covered by a private sector agreement between employers and employees.
Germany does not have a legal minimum wage and the CDU has been opposed to one for years. Specific industrial sectors have their own. The SPD-controlled Bundesrat has proposed an 8.5 euro and hour minimum wage.
The CDU/CSU position may cynically be seen as an attempt to co-opt and assimilate some of the opposition thunder and issues. However, the cost is to squeeze the beleaguered junior coalition partner, the Free Democrats. The FDP is opposed to a statutory nationwide minimum wage and even signing up to a "wage floor" would be seen as a capitulation. Polls suggest that without greater public support the FDP may not have sufficient vote to give the CDU/CSU a majority, forcing Merkel to form an awkward coalition with possibly the Greens or exception another Grand Coalition with the SPD.
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The author evidently believes the official inflation figures.
Jack I am willing to entertain the possiblity that any government's inflation caluculation is wrong, but it takes more than the accusation to make it true. If you have information to share how the German inflation number is wrong, I am more than happy to learn from you, but if this is another "if the government does it, it must be wrong or bad, is not sufficient for my purposes.
I find it interesting that an increase in government wages is supposed to spur spending... As though that money doesn't come from anywhere... In fact, we should all work for the government... make a bundle, solve unemployment... Of course we wouldn't have anything to spend our money on... But just think of how much we could sock away in savings.
so did all the bankstas of WS, the big five especially.
You know who is banking on selling the great revival to the world; all those who get a raise above inflation are on that gravy train.
and so it begins...
the Gubbermint is THE place to weork now where ever you live. I read that in China top students are now foregoing the private sector to grab a gubbermint job where "benefits" are Fat and getting Fatter.
Anyone who does not understand this needs to read, "When Money Dies" by Adam Fergusson. he details how in hyeprinflation the only winners were industrial leaders who could get their money out of germany into a foreign currency, those who had a store of PMs, and those gubbermint workers who continuously got wage increases to match the hyperinflation.
The private sector---engineers, architects, doctors, lawyers, etc---wasted away and many literally starved. His book is a must read.
The fact of the matter is in the US, there are about 750k FEWER government workers now than pre-crisis. This is one of the ways this recovery is different than other recoveries. In pthe past, under Republicans and Democrats, the government sector added workers. Not this time. I think you'll find that governments in Europe have either laid off workers and/or cut wages and benefits. All work for the government is not the same as being on the dole. Police, fire, teachers, waste disposal, soldiers, hospitals, teachers, are we supposed to believe they are all wasteful, unproductive workers ? Or is the argument itself more reflective of the loss of what was once thought of a civic virtue ?
Good for Germany like the way we pay our bankers more....so it can trickle down to us.
A wage floor will do nothing if it doesn't affect the 400 Euro jobs, which are slowly replacing all uneducated labour for which a wage floor is relevant any way.
It's election year, so someone was in a generous mood...
Yes, of course it is reasonable to suspect that the election played a role in the union and state government's finding a favorable agreement, but are the motives really important here? Does that somehow take away from the wage increases or what it does to unit labor costs? Does it mean that private sector unions will not push to get what civil servants got ? Jack Sheet wants to dimiss the piece because official German inflation may be understated. Even if he offered an alternative measure of German CPI, so what? The higher German wages the German side of the equation can adjust relative to the South. Tyler D took the conventional argument a few weeks ago, saying that BECAUSE German wage increases were unlikely, wage destruction in the periphery would have to be greater. The logic was impeccable, but here we are and German government worker wages are rising. There is movement underway for a minimum wage or a wage floor. Should we really write this off with cynicism--especially when the opposite seemed so likely?