Tuesday, July 10, 2007

Are German Wages Really Rising?

From the FT today:

Wage pressures mount in Germany

German railway workers secured an inflation-beating wage deal on Monday as official data showed the country’s economic recovery remained on track, but train drivers pledged further strike action on Tuesday in pursuit of their own, separate claim.

Deutsche Bahn, the railway operator, said it had agreed with two trade unions the largest pay claim in its history. Some 134,000 employees will receive a 4.5 per cent pay rise from January and a one-off extra €600 ($818, £406) payment covering the period until the end of the year. However, the GDL train drivers’ union did not participate in Monday’s deal, and stuck to plans for further industrial action this morning.

The recovery in Europe’s biggest economy has encouraged higher demands from trade unions, with the settlement providing the latest evidence of mounting wage pressures in Europe’s largest economy. “Looking ahead, it could clearly encourage wage negotiating partners to settle for even more generous wages going forward,” said Thorsten Polleit, economist at Barclays Capital in Frankfurt.

The prospect of higher-than-expected wage deals in Germany has already begun to unsettle the European Central Bank. Jean-Claude Trichet, ECB president, last week warned that wage deals should take account of still-high unemployment in many eurozone countries and of productivity growth rates. The ECB sees wage pressures as a significant risk to inflation.

Axel Weber, president of the Bundesbank, told a German savings bank magazine that 2008 would see “a big round of wage negotiations” and “we’re going to have greater wage pressure next year and thus have to reckon with increased risks to price stability”.

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