Latest labour market figures spark debate on 2010 wage increases

According to the latest monthly bulletin of the Federal Employment Agency, from November to December 2009 the total number of unemployed persons in Germany rose slightly to about 3.3 million people. As unemployment is expected to increase sharply in 2010, the scope for what may be considered reasonable wage increases in the upcoming bargaining rounds has recently been the subject of heated debate among economists and representatives of trade unions and employer organisations.

On 5 January 2010, the Federal Employment Agency (Bundesagentur für Arbeit, BA) published its latest unemployment and employment figures (in German). During the three weeks preceding the publication of the latest labour market figures, economists and representatives of the social partner organisations had engaged in a fundamental debate on what could be considered ‘reasonable’ in terms of wage increases in the upcoming collective bargaining rounds in 2010. The debate followed a demand submitted by the United Services Union (Vereinigte Dienstleistungsgewerkschaft, ver.di) on 15 December 2009 for a 5% pay rise (in German) for employees in state and municipal administrations. The wage negotiations, affecting some two million workers, were due to start on 13 January 2010.

Latest labour market developments

According to BA’s monthly bulletin, from November to December 2009 the number of registered unemployed persons in Germany rose by 60,000 individuals to a total of 3,276,000 people. When seasonally adjusting these figures and making allowance for a redesign of BA’s labour market policy instruments, the total number of unemployed persons increased by only 6,000 people in November and December. This increase in unemployment is considered remarkably low given the state of the economy and the country’s labour market situation in the first half of 2009. A total of about 3.3 million registered unemployed people corresponds to an increase in unemployment of 173,460 persons or 5.6% compared with December 2008. At 7.8%, the unemployment rate in December 2009 was only 0.4 percentage points above the level recorded in December 2008.

The total annual average of registered unemployed persons in 2009 amounted to 3,423,000 people – 155,000 people more than in the previous year, resulting in an average unemployment rate of 8.2% in 2009 against 7.8% in 2008.

Short-time work, the use of temporary agency workers and flexible working time arrangements all have so far prevented the reduction in companies’ orders and production output from leading to a more significant increase in unemployment (DE0912059I, DE0910039I, DE0909029I). Nonetheless, the Chair of BA, Hans-Jürgen Weise, was quoted in the daily newspaper Süddeutsche Zeitung on 7 January saying that he expected the total number of unemployed persons to rise to over four million people by the autumn of 2010.

Controversial views on wage increases in 2010

According to an article in the daily newspaper WELT on 2 January 2010, the heads of several leading research institutes argued for only moderate wage increases or even a wage freeze in the 2010 bargaining rounds. Both the President of the German Institute for Economic Research (Deutsches Institut für Wirtschaftsforschung, DIW), Klaus Zimmermann, and the President of the Rhine-Westphalian Institute for Economic Research (Rheinisch-Westfälisches Institut für Wirtschaftsforschung, RWI), Christoph Schmidt, feared that large pay rises could jeopardise economic recovery in Germany. The Managing Director of the Cologne Institute for Economic Research (Institut der deutschen Wirtschaft Köln, IW Köln), Michael Hüther, stated that the introduction of short-time work had reduced productivity and, in light of the low inflation rates in 2009 and 2010, there was no need for further wage increases beyond those agreed in previous years’ settlements. The Head of the Hamburg Institute of International Economics (Hamburgisches WeltWirtschaftsInstitut, HWWI), Thomas Straubhaar, even called for a nationwide suspension of collective bargaining at sectoral level.

The experts’ statements back the position of the General Manager of the Association of German Chambers of Industry and Commerce (Deutscher Industrie- und Handelskammertag, DIHK), Martin Wansleben, who stated in the daily newspaper BILD on 4 January that the companies’ expenditures on short-time work had exhausted their capacity for pay rises in 2010.

On the other hand, in an article issued in the Frankfurter Rundschau on 5 January, the Head of the Macroeconomic Policy Institute (Institut für Makroökonomie und Konjunkturforschung, IMK), Gustav Horn, countered that the current crisis could not be tackled by suspending wage increases. He argued that a wage freeze might weaken domestic demand. The trade union-leaning economist, Rudolph Hickel, highlighted that, due to the imposition of short-time work, workers had already incurred a loss of income. Mr Hickel is the Director of the Labour and Economics Institute (Institut Arbeit und Wirtschaft, IAW) at the University of Bremen (Universität Bremen) in northern Germany. Both economists argued for wage increases of up to 3% on average.

In an article in the Süddeutsche Zeitung on 5 January, the Chair of the Trade Union of Food, Beverages, Tobacco, Hotel and Catering and Allied Workers (Gewerkschaft Nahrung-Genuss-Gaststätten, NGG), Franz-Josef Möllenberg, emphasised that wage increases were needed to raise domestic demand. A member of the executive committee of the German Metalworkers’ Union (Industriegewerkschaft Metall, IG Metall), Helge Schwitzer, supported this view, arguing that sufficient consumer purchasing power was essential for combating the economic crisis.

Oliver Stettes, Cologne Institute for Economic Research (IW Köln)