A compromise was reached during wage negotiations in Potsdam on Saturday night after 14 hours of talks and the intervention of mediators.
The pay raise comes despite the terrible state of local and federal governmental finances.
President of the association of communal employers Thomas Böhle said the increase will be a burden on the budgets, but welcomed the 26 month implementation period.
He said it would cost local governments and their companies around €1.1 million this year, and a further €1.3 million next year.
Public workers' union Verdi's chairman Frank Bsirske said the negotiations had been extremely difficult. He said the result was, “More than the employers' attitude in the negotiations could lead one to expect, but it is less than many had hoped for, and what would have been necessary.”
Verdi had initially demanded a controversial five percent pay increase for its two million members, staging strikes across the country, affecting hospitals, child care centres, road maintenance, rubbish collection and public transportation. But states and cities said such a hefty raise was unrealistic following the financial crisis.