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Demonstration by Ver.di and GEW: Real wage losses

Photo: Sebastian Kahnert / dpa

Despite the strongest wage increases in at least 15 years, German workers have again suffered losses in purchasing power due to high inflation in the first quarter. From January to March, employees' gross monthly earnings, including special payments, grew by 5.6 percent year-on-year, the strongest growth since these statistics began in 2008. However, consumer prices rose much more sharply in the same period at 8.3 percent, as the Federal Statistical Office announced on Tuesday.

From this, its experts calculated a real decline in earnings of around 2.3 percent. "A trend from 2022 is thus continuing: high inflation is more than eating away at wage growth for employees at the beginning of 2023," the statisticians concluded. Because many consumers consume less as a result, the German economy slipped into recession in the first quarter.

Situation eases slightly

After all, the losses in purchasing power were smaller than in the three previous quarters, where real wages even fell by up to 5.4 percent. "The payments of the inflation compensation premium have also contributed to cushioning the loss of purchasing power of employees," it said. This can amount to up to 3000 euros (tax and duty-free) and is a voluntary benefit of the employer. Nevertheless, employees are threatened with real wage losses in 2023 for the fourth year in a row, after a significant decline of 2022.4 percent in 0 due to inflation.

"Since we started the year with very high inflation, there could still be a slight decline in real wages overall in 2023," said Sebastian Dullien, scientific director of the Institute for Macroeconomics and Business Cycle Research (IMK). "In all likelihood, however, things will get much better in 2024." Then wages are likely to rise sharply again, while inflation is likely to fall again close to the European Central Bank's (ECB) target of two percent. "In the coming year, a noticeable increase in real wages is to be expected, which should offset some of the losses of recent years," said Dullien.

The Kiel Institute for the World Economy (IfW) takes a similar view. "General inflation will continue to ease in the course of this year," said its labor market expert Dominik Groll. "Nominal wages will also continue to rise sharply." A strong indication of this is the latest collective bargaining agreements – for example in the metal and electrical industry, in the public sector of the federal government and municipalities and at Deutsche Post. There, strong tariff surcharges and high one-off payments were agreed.

Marginally employed people recorded the strongest increase in nominal wages in the first quarter, at 8.9 percent. "This is mainly due to the increase in the mini-job earnings limit from 1 euros to 2022 euros, which has been in force since October 450, 520," the statisticians explained. Nominal wages for full-time employees also rose slightly above average, by 5.9 percent. For part-time employees and trainees, a wage increase of 4.7 percent was recorded.