Collective wage agreement and gross hourly wage development in Germany

For some years now, wage developments in Germany have been shaped above all by a sector-differentiated, productivity-oriented and flexible collective wage policy.

This successful model of collective bargaining partnership must be continued in the future. In economic upswings, as in recent years, employees benefit from the success of the companies. In times of economic weakness and tensions in the labour market, as is currently the case during the "Corona pandemic", the competitiveness of the companies is maintained to a particularly high degree.
Differentiated and productivity-oriented collective wage development allows employees to participate in the success of companies and secures jobs
The increase in productivity is the benchmark for wage development that supports the competitiveness of companies and thus contributes to securing employment in Germany. In addition to the development of the economy as a whole, it is above all the economic expectations in the individual sectors and the room for manoeuvre of companies that are the guiding principles for collective wage agreements. The often different starting positions in the individual sectors of the economy are therefore necessarily followed by differences between the sector-specific wage increases. The range of wage increase rates in 2019 was mostly between 2.5 % and 3 %. In 2020, which is significantly influenced by the economic consequences of the Corona pandemic, some industries have refrained from agreeing on collective wage increases as part of their regular , such as the metal and electrical industry. Other sectors that were less restricted by the pandemic, such as the construction and mining industries, have agreed wage increases of up to 3.5% for this year.
Long terms offer important planning security
In order to offer companies more planning security, collective agreements with long terms of mostly over 20 months have frequently been agreed in recent years. These wage agreements are often combined with initial one-off or lump-sum payments or zero months, i.e. months without a wage increase or payments that replace wage increases for a certain period. According to numerous economic experts, it was also thanks to this differentiated and productivity-oriented development of collective wages that Germany coped better than its European neighbours with the economic crisis ten years ago and its consequences (source: German Council of Economic Experts, 2010/2011; Federal Ministry of Economics, 2010). The current collective wage agreements in the "Corona Year 2020" are also shaped by these collective bargaining policy instruments and give companies more breathing space in what is an extremely tense economic period.
Flexible remuneration offers companies the necessary room for manoeuvre
A key element of collective wage agreements is the flexibilisation of pay components. This makes it possible to take better account of both possible economic fluctuations and the individual economic situation of individual companies during the term of a sectoral or regional collective agreement. Depending on the economic situation, the agreement of opening clauses in collective agreements enables companies, for example, to postpone agreed increases in collectively agreed wages and/or to reduce one-off or special payments or even to do without them altogether. However, this flexibility is not a one-way street: In economic upswings, this scope will be used, for example, to bring forward collectively agreed wage increases or to forego a postponement altogether, or to increase one-off payments.
In addition to the flexible scope provided by collective pay agreements, numerous collective agreements also contain various elements of flexibility in the area of pay, such as forms of earnings-related and performance-related pay. Earnings-related pay usually involves the flexibilisation of annual special payments, which can usually be varied within a certain bandwidth by means of a voluntary company agreement depending on the course of business. Performance-related remuneration essentially refers to parts of the collectively agreed pay or to an additional bonus that is structured variably according to individual and/or team performance. Recently, there have also been some options under collective bargaining agreements, such as at Deutsche Bahn AG, Deutsche Post AG, the metal and electrical industry and in the chemical industry, to convert pay components into more time off.
Domestic economy benefits more from employment growth than wage growth
Demands for above-average wage increases are often justified by the need to strengthen purchasing power and stimulate the domestic economy. However, after deducting taxes, social spending and savings as well as the purchase of foreign goods, only a small part of the wage increase of the employees actually reaches the domestic companies. Model calculations show, for example, that for a wage increase of €100 on an average gross monthly wage, only about one-third flows into domestic consumption, depending on the tax burden.
In addition, higher labour costs due to wage increases can lead to a lack of investment and job cuts or at least prevent new employment growth - this then further inhibits the domestic economy. Empirical analyses make it clear that it is above all the employment trend that has a positive effect on consumption and not the wage trend: a 1% wage increase only boosts consumption by 0.2%, while a 1% increase in employment boosts it by around 0.4 to 0.5% (source: IW, 2012).
High unit labour costs burden businesses
Overall, high gross hourly wages and additional personnel costs represent a considerable burden for companies in Germany. The argument often put forward in this context that the burden of labour costs is compensated for by high productivity is too short-sighted: Germany is one of the countries with the highest productivity worldwide. However, unit labour costs - i.e. the ratio of labour costs to productivity - show that this is not enough to compensate for our country's immense labour cost disadvantage.
This is because, despite the somewhat more favourable unit labour cost trend from 1999 to 2007 due to the labour market policy reforms that were necessary at the time, unit labour costs have risen again since the beginning of this decade compared with foreign competitors. Thus, the unit labour cost level of important comparator countries is on average 8 % below the German level. In the United States, production can even be carried out at 20% lower unit labour costs. Thus, the recurring accusation that German industry is too competitive in terms of costs is in no way justified (source: IW, 2019).
Germany is one of the countries with the highest hourly wages
Despite moderate wage increases in the 2000s, Germany is still one of the countries with the highest hourly wages worldwide. This fact is disregarded by critics from the ranks of the European Union, who bemoan Germany's moderate wage development as a reason for our country's export strength. In the manufacturing sector, the average gross hourly wage of a full-time employee in Germany was over €22.30 in 2018. By comparison, in neighbouring Poland and the Czech Republic, the average gross hourly wage was €5.84 and €7.13 respectively (source: Eurostat, 2020).