More than two million workers are to receive a pay increase of 4.75 percent over two years, Interior Minister Thomas de Maiziere said after a third round of talks with Germany's biggest services sector union, Verdi.
In a statement Verdi said the increase would be paid in two stages, with a first increment of 2.4 percent in March 2016 to be followed by another 2.35 percent in February 2017.
The union, which had initially demanded a six-per-cent pay rise, hailed the result as “a compromise that clearly increases salaries, boosts purchasing power and helps make the public sector more attractive” to workers.
On Wednesday, walkouts by Verdi members forced the cancellation of more than 1,200 flights in and out of the country's main airports, with flag carrier Lufthansa among the hardest hit.
The union had also recently organised work stoppages in hospitals, town halls and child care centres.
On Friday, the labour unrest spread to the automobile sector, with around 110,000 people taking part in strikes organised by the powerful IG Metall union aimed at pressing the wage demands of 3.4 million metal sector workers across the country.
IG Metall is demanding a pay rise of five percent for its members.
After a decade of enforced wage moderation, German workers have begun receiving more generous pay increases.
The pay rises are helping drive domestic demand, which has taken over from exports as the main driver of Europe's largest economy,