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Germany tops world for shrinking wages
Photo: DPA

Germany tops world for shrinking wages

Published: 15 Dec 2010 16:54 CET

The Global Wage Report by the International Labor Organization – a United Nations agency in which workers, employers and governments are represented – found that gross wages fell 4.5 percent when adjusted for inflation, according to news magazine Der Spiegel.

Low wage growth has been widely credited for the competitiveness that has allowed Europe’s biggest economy to recover swiftly from the global downturn.

But the ILO challenged this idea, pointing out that the slump results from the increasing number of part-time jobs in Germany.

No other industrialised country experienced such a backslide, the report said. Of all the industrialised nations, Norway, Cyprus and Finland enjoyed the strongest wage growth, with Norway posting an increase of 25.1 percent.

After the worst economic slump since World War II, Germany has recovered strongly and is expected to grow by at least 3.5 percent this year. Wage restraint is widely thought to have helped with that growth by keeping costs down for Germany’s many export-oriented manufacturers.

During wage negotiations, unions have generally traded away big wage rises in return for job security for workers.

But according to the ILO, the 4.5 percent gross wage contraction is also attributable to an expansion of low-wage sectors along with the growth of flexible employment such as part-time and so called “€400 jobs,” Der Spiegel reported.

People in such jobs earn on average about one third less per hour than traditional, full-time workers.

If one counted only workers in full-time jobs, wage growth in Germany was 6.7 percent adjusted for inflation compared with 10 years ago.

Indeed, wages had not kept pace with economic growth, the ILO found. Their share of the national income fell from 72.2 percent a decade ago to 65.1 percent last year. The share fell particularly sharply between 2003 and 2007, the report said.

The ILO was complimentary, however, about the German crisis management during the downturn, praising for instance the Kurzarbeit (short work) scheme through which the government subsidised workers to go onto shorter hours rather than having their firm’s lay them off. This was highly successful at keeping the unemployment rate down. bit also contributed to the sinking monthly wage.

Through “intelligent labour market instruments” and a “good dialogue with social partners,” employment had remained stable and wages had fallen only a little. Kurzarbeit had been a “good investment,” according to the ILO.

However, declining wages during the crisis was only part of a longer-term trend. Wages were no longer keeping pace with productivity “and income gaps are getting wider,” the report concluded.

Furthermore, low wage growth dampened domestic demand, which hurt the recovery prospects in other countries, the report said.

“Stagnating or falling wages are hindering the economic rebound in many countries,” said ILO director-general Juan Somavia.

Governments should “focus their activity on employment and appropriate remuneration,” he said.

Some German economists say, however, that wages are starting to grow and domestic demand in Germany is climbing along with them. The robust growth in 2010 has encouraged trade unions to push for better wage deals.

State government public sector workers demanded on Tuesday a three percent wage rise, while union Verdi called for a 6.5 percent rise for telecommunications employees. The union IG BCE also recently vowed to pursue a rise of at least six percent for Germany’s 550,000 chemical industry workers.

“This is our rebound too,” a workers’ representative said. “We want to benefit from it as well.”

The Local/DAPD/dw

The Local (news@thelocal.de)

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