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Another year like this and many Germans will find themselves at a significantly reduced level of prosperity.
Earnings will rise by a good four percent in 2022, but consumer prices will increase by around eight percent on average.
The purchasing power of wages is shrinking significantly.
What is beginning now is typical of times of surprising and unpredictable inflation: distribution struggles.
Nobody wants to be the one who ends up as the loser.
More than half of all companies are planning price increases, according to a recent survey by the ifo Institute.
The dynamics of inflation has affected all sectors.
There is a lot of social explosives in there.
Because not only are energy costs going through the roof, but some companies are using the times to increase their margins as well, ugly arguments could be imminent.
Before the start of the current round on chemicals (until
Tuesday
), IG BCE negotiator Ralf Sikorski pointed out as a precaution that there were also such deadweight effects in his industry.
Employers now have to assume all the more responsibility for their employees.
The chemical negotiations are one of the few bargaining rounds that are still ongoing this year.
In the spring, the chemical collective bargaining partners, known for their notoriously cooperative dealings, agreed to meet again in the autumn when inflation could be seen more clearly.
Until then, there was a one-off payment of 1,400 euros for every employee in the industry.
Autumn is here and it is clear that inflation has not remained a brief episode.
The trade unionists are also demanding a “sustainable increase in purchasing power”.
Which can be translated as: not another one-off payment, rather permanent wage increases above the inflation rate.
After all, the cost of living will not eventually fall back to pre-war levels, but at best will rise more slowly in the future.
But how much exactly do wages have to rise now?
That's where things get tricky.
Degrees above 10 percent?
Inflation forecasts are currently extremely difficult.
Recently, consumer prices in the USA have once again risen faster than experts had expected.
And it doesn't look as if the situation will improve significantly in 2023 either.
Another six percent inflation in Germany, predicts the head of the Bundesbank, Joachim Nagel, for the coming year.
But such statements should be treated with caution.
In the recent past, the central banks have repeatedly been blatantly wrong.
In their autumn forecast, the leading economic research institutes also expect 8.8 percent inflation in Germany in 2023 and a noticeable calming down only from 2024.
According to this, a “sustainable increase in purchasing power” could be translated as – a deal in the order of ten percent and more.
This is exactly what the collective bargaining commission for the public sector has called for: 10.5 percent, but at least 500 euros for municipal and federal employees.
Their collective bargaining round begins at the beginning of the year.
It could become a hot wage conflict that will also spread to other sectors.
Gas crash warning
What makes matters tricky is the macroeconomic environment.
Because inflation and the associated struggles over distribution take place against the background of a ailing real economy.
Economic output already seems to be shrinking slightly in the current quarter.
For the coming year, the economic researchers expect a recession in Germany.
The extent of this decline depends primarily on the energy shortage.
If there is no acute rationing, the forecasts assume a slight contraction of 0.4 percent.
Not great, but given the extremely uncertain world situation, no drama either.
However, the joint diagnosis calculates various risk scenarios in the event of a real shortage in the gas supply.
The results are dramatic: According to them, economic output could shrink by up to 7.9 percent in 2023, and by another 4.2 percent in 2024.
Ground zero of the crisis would be industry, whose added value would fall by a quarter in each of the two years.
It would be a recession the likes of which the Federal Republic has not yet experienced, followed by a severe structural crisis.
Pressure from outside – and from below
However, if such a nightmare scenario does not materialize, workers and their unions will not be in a bad bargaining position.
Due to the aging of the population, the shortage of labor continues.
Unemployment is low.
Instead of dismissing employees or sending them into early retirement as they used to in the past, many companies are starting to “hoard” employees, as labor market researchers call it: In order not to be left without people in the next upswing, they keep employees even in bad times on the payroll.
It is fitting that companies have reported more vacancies to the employment agencies than ever before.
There is also a tailwind from the minimum wage.
An hourly rate of twelve euros has been in effect since October 1 – an increase of a whopping 25 percent.
The increase creates pressure from below to raise the entire salary structure.
Employees suffer, not cause
more on the subject
Association of civil servants announces high wage demands: "This round of collective bargaining is all about money"
The question of inflation becoming independent remains.
German trade unions pride themselves on not only keeping an eye on the interests of employees, but also on overall economic stability.
However, high wage settlements could fuel inflation dynamics further.
The notorious "second-round effects" would set in motion a price-wage spiral that would make it all the more difficult for central banks to fight inflation.
Might be.
However, I think the argument is weak, at least not in the current situation.
For three reasons:
Firstly,
in Germany we have not yet been talking about wage demands of 15 percent, as advocated by Verdi's predecessor trade union ÖTV in the 1970s;
in the end – after a bitter labor dispute – the result was a plus of eleven percent for the public sector.
A lot is different this time.
Measured against actual inflation, the agreements concluded to date and the current demands of the trade unions are moderate.
Even the 10.5 percent that is on the table for the public sector will ultimately lead to a result that is presumably below the inflation rate, which means that it will result in further real wage losses.
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Secondly
, demanding real income losses from employees is, to put it mildly, a difficult position.
So far, the trade unions have based their calculations on the inflation target of the European Central Bank (ECB), relying on the ECB to deliver the targeted two percent and making correspondingly cautious demands.
The fact that inflation is now surprisingly getting out of hand is due to the Russian war of aggression against Ukraine and the subsequent mutual sanctions and embargoes, but also to the course of the central bank, which has pursued a strongly expansive monetary policy for far too long: The energy price shock met an inflationary one anyway heated economy.
Of course, the central banks in Frankfurt, Washington, London and elsewhere are not solely responsible for the inflation.
But as recently as last autumn, when the signs of overheating had long been evident, they preferred to continue telling the wild story of stable money.
It's actually time to apologize.
Be that as it may, employees suffer from inflation, not cause it.
Accordingly, they are entitled to a certain amount of compensation.
Third:
What is scarce must be expensive for something to change the scarcity.
When labor is scarce, wages should increase more.
In fact, they already do.
A pronounced “wage drift” can be observed this year: Employers are raising salaries more than they would have to according to collective bargaining agreements.
Why?
Because otherwise people will switch to competitors.
Because more money – or less loss of real wages – increases motivation.
Faced with scarce and expensive labor, companies are being forced to look for ways to increase productivity.
And from a macroeconomic point of view, that is long overdue.
The most important economic dates of the coming week
Expand areaMonday
Luxembourg -
Dealing with state villains
- Meeting of EU foreign ministers.
It's about the progress of the war in Ukraine and the relationship with China.
Wiesbaden –
end of modesty?
- Third round of negotiations for employees in the German chemical and pharmaceutical industry (until Tuesday).
Earnings Season I
- Results from Bank of New York Mellon, Bank of America.
ExpandareaTuesday
Beijing –
Lame giant
– China's statistics office is presenting figures on economic growth – as the People's Congress is in session and Xi Jinping is getting closer to sole rule.
By Chinese standards, they are likely to be disappointing.
Earnings Season II
– Financials from Roche, Netflix, Lockheed Martin, Johnson & Johnson, Goldman Sachs, State Street, Rio Tinto.
ExpandareaWednesday
Reporting Season III
– Business figures from Deutsche Boerse, Nestlé, Tesla, IBM, Abbott, United Airlines, Procter & Gamble, Alcoa, Lam Research, NASDAQ.
Expand areaThursday
Brussels -
No peace in sight
- The heads of state and government of the EU countries meet for a summit (until Friday).
The issues are obvious: the war, the energy shortage, the accusation of distortion of competition (by Germany).
Berlin –
Dig deeper
– BDI raw materials congress, with Economics Minister Habeck and BDI frontman Russwurm.
Reporting Season IV
- Results from Blackstone, Akzo Nobel, AT&T, Nokia, Dow, Ericsson, Philip Morris, Whirlpool, ABB, Volvo AB, Hermes, Pernod Ricard, L'Oréal, Vivendi.
ExpandareaFriday
Reporting Season V
– Results from EssilorLuxottica, American Express, Faurecia, LSE, Renault, Deliveroo, Schlumberger, American Express, Verizon.
