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German wages sink in real terms for second year in a row

The Local Germany
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German wages sink in real terms for second year in a row
A customer withdraws cash at an ATM in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

Real wages have fallen for the second year in a row in Germany as high inflation continues to erode people's earnings.

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The Federal Office of Statistics estimates that wages fell by around 0.1 percent in real terms last year.

Though employees saw a higher-than-average pay rise and bonuses that amounted to an average 3.1 percent increase in earnings, this was eroded by a concurrent 3.1 percent increase in consumer prices.

In 2020, the increased use of shortened working hours (or Kurzarbeit) contributed to the fact the wages started to lag behind inflation.

READ ALSO: Working in Germany: 7 factors that can affect how much you’re paid

However, many industries ended the scheme for most employees in 2021 as Covid regulations and measures were relaxed.

As a result, workers' weekly working hours increased again last year as the economy started to normalise.

"This led to increased gross monthly earnings of workers, as the short-time work allowance does not count towards gross earnings," the statisticians explained.

They said this catch-up effect was particularly large in sectors that had been hit hard by the Covid measures in 2020, such as the hospitality and leisure industry.

Nevertheless, the rebound of the economy has also caused global supply issues that have led to record levels of inflation.

This means that the wage increases are unlikely to lead to increased disposable income for many employees. 

No trend-reversal in sight

For the current year, economists once again expect real wages to fall, as inflation is forecasted to increase even more than in 2021.

Munich-based economic research institute, Ifo, recently raised its inflation forecast for 2022 from 3.3 to 4.0 percent.

This would be the largest increase since 1993, when inflation reached 4.5 percent.

READ ALSO: How the cost of living crisis is affecting everyday life in Germany

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The Ifo researchers based their forecast on high energy prices and a survey of businesses that revealed that many companies were planning to hike their prices further. 

Some economists assume that the trade unions could push through stronger wage agreements due to the higher inflation in order to curb losses in purchasing power.

In turn, sharply rising labour costs could prompt companies to raise their selling prices sharply to maintain profit margins. This could set in motion a spiral of continuously rising prices and wages.

Vocabulary 

real wages - (die) Reallöhne

consumer prices - (die) Verbraucherpreise

normalise - normalisieren 

hard-hit - hart getroffen 

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