In Germany there is currently a tendency to portray defeats as victories. The attempted grand coalition is an excellent example. According to Heiner Flassbeck and Michael Paetz the same is true of the much heralded recent collective bargaining agreement of the German metal and engineering union IG Metall.
Heiner Flassbeck is an economist, as well as publisher and editor of “Makroskop” and “flassbeck economics international
Michael Paetz is an economist at Hamburg University
Cross-posted from Makroskop
Translated and edited by BRAVE NEW EUROPE
Germany’s metal and engineering union, IG Metall, claimed to have scored a major success last week. A 4.3 percent pay rise sounds good if you demanded 6 percent with a lot of ballyhoo. But the numbers are misleading. At best it translates into an increase of 3 percent per year if you tot up what has been agreed.
This deal between industrial bosses and the German union is being celebrated as a monumental victory by the unions. As Roman Zitzelsberger, the principal union negotiator, explained:
The excellent economic situation (in Germany) had raised high expectations among employees. An increase in incomes of more than 4.3 percent, a cash payment of 400 euros, and the collectively agreed additional pay given to employees means more money in their wallets in real terms, allows them to participate appropriately in the profits of the companies, and to increase their private consumption “.
4.3 percent more money?
This sounds very good at first glance, but look a bit closer and you wonder what exactly the unions are so jubilant about. This is also due to the fact that the union apparently has made every effort not to state clearly what the agreement means over a 12-month period, instead of the 27 months that this agreement covers.
The 4.3 percent wage increase is the only number being touted by the media. It may sound like a lot, but if you annualise the 4.3 percent (that have to be spread over 27 months) you get to a paltry 1.91 percent a year as a rule of thumb. This is hardly enough to keep pace with structural wage inflation. Yet 4.3 percent is the only figure mentioned in mainstream German media, described as a “painful wage increase” for employers, because of the four in front of the decimal point.
There are also some ancillary agreements, but these are difficult to quantify, which is why it is all the more annoying that IG Metall does not tell its members the whole truth about what this agreement means for a typical worker’s income (or for various worker groups) in terms of an annual wage increase.
No success in reducing working hours
We calculated the average income of a worker in the German metal industry together with the earnings increase over 27 months. With a salary of about 3,400 euros a month in 2017, the employee would have earned about 100,000 euros with various bonuses over the next 27 months without a salary increase (the exact details can be found in the table).
With the newly agreed increases, a one-off payment of 400 euros (which must only be paid if the economic situation of the company permits), and “additional pay according to the collective bargaining agreement” of 27.5 percent of a month’s income for the 27 months, this results in an income of 106,000 euros.
The package translates into an increase of 5.3 percent (with the 400 euros) for the entire 27 month period and 4.9 percent without the 400 euros. If a “normal” collective agreement had been negotiated, with tariffs increasing by a certain percentage in January each year, then the same total earnings would have been achieved over the 27 months with an annual increase of about 3.17% (approximately 3% without the 400 euro one-off payment). This would be equivalent to 3,526 euros from January 2018, 3,638 euros from January 2019, and 3,753 euros from January 2020.
That, dear IG Metall, is not good enough. With an inflation target of 1.9 percent, the expected increase in real wages is only slightly above one percent, which is less than the productivity growth expected to be achieved in Germany in the medium term. This means that the very good position of companies in this sector does nothing to improve the workers’ share of these favourable results. As a result, in other sectors that are negotiating new contracts, the collective agreements are likely to remain below 3% this year, not to mention wages in areas where trade unions are barely present. Thus in the coming two years there will be practically no progress in terms of reducing European wage imbalances. That is a very high price to be paid by the trade unions, all other workers, and European Monetary Union itself, for the ultimate failure to achieve reductions in working hours and wage inequality.