German Wages Are Rising

German employers are finally agreeing to workers’ demands for higher pay after more than a decade of only modest increases.

Despite the initial demands for pay raise by more than 6 percent, the settlements average in the 3-4 percent range this year. This is, according to economists, considerably higher compared to 2010 and 2011, yet not high enough to set off a wage-driven inflation.

Wage increase gives workers a greater share of Germany’s economic revival. The country’s gross domestic product has grown 3 percent or more the past two years. It expanded at a 2.1 perecnt annualized rate last quarter, significantly outpacing the rest of the euro zone members. Germany’s 5.6 percent unemployment rate is about half the euro zone average.

Wage increases in Germany are beneficial for the entire euro zone because, coupled with wage cuts in countries such as Spain, this would make Europe’s troubled economies more competitive. At the same time, German households would have extra money to boost domestic demand and spending abroad, providing a market for suffering economies in Southern Europe.

However, Germany should keep a lid on its wages. The country must maintain its competitive edge with other global economies such as the US and China. Also, since its population is one of the oldest in Europe, wage-driven inflation could potential eat retirees’ fixed incomes.

Source: Wall Street Journal

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.