German workers faces real wage losses despite wage increases

German workers continue to face challenges to their purchasing power in 2023, as revealed by recent data from the Institute of Economic and Social Research (WSI) of the Hans Boeckler Foundation. The analysis shows that, despite a rise in collectively agreed wages and a dip in inflation, many employees in Germany are still experiencing a decrease in real wages.

The report indicates that collectively agreed wages have risen by an average of 5.6 per cent in nominal terms this year. However, with an anticipated inflation rate of 6.0 per cent for 2023, the real wages, when adjusted for inflation, are set to decrease by an average of 0.4 per cent. This situation points to a subtle but significant erosion of spending power among German workers.

Thorsten Schulten, the head of the WSI collective agreement archive, notes, "Although the purchasing power of employees under collective agreements might be nearly maintained in 2023, the substantial real wage losses from the past two years linger." 

"The purchasing power of employees covered by collective agreements could be almost secured in 2023, however, the considerable real wage losses of the two previous years remain," Schulten said.  While collectively agreed wages had risen continuously in real terms in the 2010s, prices rose significantly more than wages in 2021 and 2022.

The report also highlights that the real wage growth seen in the 2010s has been offset by price increases outpacing wage growth in 2021 and 2022. While the WSI acknowledges the impact of various inflation compensation measures implemented in many sectors, these have not been sufficient to completely offset the negative trend.

Schulten adds, "Some sectors have seen significant real wage boosts thanks to inflation compensation payments." However, he cautions about the temporary nature of these payments, noting their potential to dampen wage growth in the following years. He also points out the social benefits of these inflation bonuses, particularly for the lower wage groups.

Looking ahead to 2024, Schulten anticipates that with declining inflation rates, there might be reduced pressure for higher wage increases during collective bargaining rounds. This forecast suggests a potential easing of the wage-inflation dynamics in the German economy, although the long-term impact on worker purchasing power remains a key concern.

(With Reuters inputs)