Real wage growth in spring
Purchasing power increases for the first time in two years – but only minimally
8/29/2023 3:57 p.m
For the first time in two years, the average increase in wages in the spring was higher than inflation. Among other things, a higher minimum wage, higher additional earnings limits and the inflation premiums paid in many cases have contributed to this. Experts are hoping for private consumption to drive growth.
Falling inflation, inflation premiums and a higher minimum wage in the spring quarter have increased the purchasing power of German employees for the first time in two years – albeit only slightly. From April to June, gross monthly earnings including special payments grew by 6.6 percent compared to the same period last year, more than ever since these statistics began in 2008. Consumer prices rose somewhat more slowly at 6.5 percent, as reported by the Federal Statistical Office. This results in a slight increase in real wages of 0.1 percent – the first increase since spring 2021.
In the annual perspective, real wages have been falling since 2020, when the corona shock led to mass short-time work. Then, in the past two years, the sharp rise in consumer prices has been the main reason for the decline in real wages.
Fritzi Köhler-Geib, chief economist at the state-owned KfW banking group, expects that after consumers kept their money together in the face of energy price-driven inflation, private consumption could again support economic development. She expects a more significant increase in real wages towards the end of the year. “Driven by the high price increases and the shortage of skilled workers, employees will receive the highest nominal earnings increases in 30 years in the current year,” analyzed the economist.
Real wage losses could be compensated for in 2023
Most recently, inflation – which was still 8.7 percent in January and February – has eased noticeably, even if it remains unusually high. “Payments of the inflation compensation premium also contributed to the slight gain in purchasing power,” the statisticians explained. This can be up to 3000 euros and is tax and duty free. The increase in the minimum wage to twelve euros per hour in October 2022 will also have a positive effect on overall wage growth, according to the statisticians.
According to the Kiel Institute for the World Economy (IfW), it is not yet clear whether real wages will also rise on average over the year. “By next year at the latest, nominal wages will in all likelihood rise much faster than consumer prices,” said IfW expert Dominik Groll. With a bit of luck, the real wage losses that accumulated between 2020 and 2022 could even be made up for. “In the coming year, however, we would still be a long way from the pre-crisis trend – i.e. the real wage level that would be realistic without the pandemic and energy crisis,” Groll expects.
Mini jobs and minimum wage
Despite the slight increase in purchasing power, private consumption as the engine of the economy is likely to fail for the time being. Real consumer spending in 2023 would probably be around 1.25 percent below the previous year’s figure, according to the employer-related Institute of German Economics (IW Köln). This is also indicated by the bad mood among consumers: the GfK consumer researchers predict their barometer will fall by 0.9 points to minus 25.5 points for September. “Persistently high inflation rates, especially for food and energy, mean that the consumer climate is currently not improving,” judged GfK expert Rolf Bürkl.
Marginal employees showed the strongest increase in nominal wages at 9.7 percent. According to the statisticians, this is mainly due to the increase in the mini-job earnings limit from 450 to 520 euros per month, which has been in effect since October 1, 2022, as well as the increase in the minimum wage to twelve euros. There was also a sharp increase in wages for part-time employees (+7.2 percent) and trainees (+8.4 percent). The nominal wages of full-time employees rose slightly below average at 6.3 percent: Here, the fifth with the lowest earnings had the strongest wage increases at 11.8 percent.
In the hospitality industry, nominal wages rose particularly sharply in the past quarter at 12.6 percent, as did in the arts, entertainment and recreation sector at 11.9 percent. Employees in the transport and warehousing sectors also benefited from an above-average increase in wages (10.0 percent). This includes, for example, aviation. “These increases are also due to catch-up effects, since the sectors were particularly hard hit by the lockdown and short-time work during the Corona crisis,” the statistical office said.
According to an analysis by the OECD, nominal wages fell in almost all developed economies during the corona pandemic. At the same time, employment has now recovered, leading to the lowest unemployment rate since the early 1970s. Since there are few signs of a price-wage spiral, the OECD recommends state-controlled minimum wages and collective bargaining to cushion the loss of purchasing power among employees.