Verdi wants 15 percent more wages for postal workers, 12 percent for EVG at the railways, 10 percent in the public sector: Could that set a so-called wage-price spiral in motion?
Clear message: Verdi wants an increase of 15 percent for the employees of Deutsche Post
This Friday a small demonstration took place in Frankfurt. The Verdi union is protesting in front of a branch of Galeria Kaufhof Karstadt, while collective bargaining between the company and employee representatives has started in the branch. The demands are moderate, the trade union “only” demands the application of the collective bargaining agreement for the retail sector.
Management thinks it's too much. She wants to negotiate on the basis of the restructuring collective agreement. The company is going through bankruptcy on its own. So while this is a special case, the underlying problem is universal: workers are losing purchasing power in the face of high inflation. Unions are therefore under pressure to negotiate significantly higher wages for their members.
Double-digit wage demands
This can be seen in current collective bargaining disputes: the Verdi services union is currently demanding 15 percent for Deutsche Post employees and is putting pressure on this demand with warning strikes. The railway and transport union (EVG) is asking twelve percent for a tariff that is higher than ever in its history. And if the trade unions have their way, around ten percent more salary should flow into the pay packets of state employees at the federal and local governments.
Public service employees protest at the start of collective bargaining on January 24
These are demands that are rarely seen. But they are obviously not unrealistic: the almost four million employees in the metal and electrical industry, for example, will receive 8.5 percent more wages in two steps and a one-off payment of 3000 euros net.
Against this background, the Vice President of the European Central Bank (ECB), Luis de Guindos, warned of a so-called wage-price spiral in an interview. In the case of rising wages and rising prices, they mutually inflate – with potentially negative consequences for the economy. “There must be no wage-price spiral. We have to be careful about that,” said Luis de Guindos of the Süddeutsche Zeitung.
Pros and cons
“If we get into a wage-price spiral, the ECB will have to raise interest rates even more than would otherwise be necessary. With such dynamics, nobody wins and everyone ends up worse off.” Because rising interest rates to counteract a wage-price spiral dampen the economy.
However, not all economists currently see this scenario as realistic or threatening. “In Germany there is no sign of wages accelerating to such an extent that this would endanger stability,” Sebastian Dullien told DW. He is head of the Institute for Macroeconomics and Business Cycle Research of the union-affiliated Hans Böckler Foundation. Because what counts is not the wage demands that unions make in collective bargaining, but the end result.
According to the latest data from the Federal Statistical Office, the results so far are indeed comparatively moderate. Wages for white-collar workers rose by an average of 3.4 percent last year. However, the significantly higher inflation has more than eaten up the increases. The bottom line is therefore a real wage loss of over four percent. The 8.5 percent increase in the metal and electrical industry is also put into perspective. The agreement envisages an increase of 5.2 percent for 2023, and wages will then increase again by 3.3 percent in 2024.
Inflation target: Two percent
Inflation is likely to remain well above these values in the coming months. For example, the Kiel Institute for the World Economy expects inflation to be 5.4 percent this year. According to an initial estimate by the Federal Statistical Office this week, consumer prices in January were 8.7 percent higher than in the previous year.
Nationwide warning strikes at Deutsche Post: In Nuremberg, the striking Post and DHL employees form up as a human 15 percent sign
Friedrich Heinemann, on the other hand, sees the risk of a wage-price spiral. According to the economist at the Mannheim Center for European Economic Research (ZEW), the previous wage agreements have remained moderate. However, the currently high wage demands point in a different direction. “I don't think a wage-price spiral is off the table at all. Wages don't have to rise by eight percent. It's enough if they rise by four or five percent. That would have an effect again and would increase the inflation rate well above two percent.” The European Central Bank's target, which it sees as guaranteeing price stability, has been two percent for almost two years. Previously the target was “below, but close to, two percent”.
A “small wage-price spiral ” sees the chief economist of ING Germany, Carsten Brzeski, coming. From his point of view, however, this is not a problem, on the contrary: “That's a good thing. Because we've had real wages falling in Germany in the last three years in a row. Purchasing power is becoming weaker. So an increase in wages is now good , which is higher than the inflation rate.”