German employers are finally agreeing to workersâ€™ 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
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