EconomyEurozone’s long-stagnating wages start to rise as cost of...

Eurozone’s long-stagnating wages start to rise as cost of living soars

As Germany’s biggest union, IG Metall, begins discussions on demands for a wage increase of up to 8.2 per cent for the country’s 85,000 steelworkers in the coming weeks, Birgit Dietze expects reverberations for workers across Europe.

“When companies are making high profits, as they are at the moment, there can and must be compensation for the sharp rise in prices for employees,” Dietze, IG Metall’s chief negotiator in the east German steel industry, told the Financial Times ahead of a vote by the union’s board later on Sunday, when members are expected to back the proposed rise.

The IG Metall discussions, which are set to conclude by the summer, are expected to provide a benchmark for negotiation rounds in other industries tabled for later in 2022. “Everybody who bargains on wages looks very closely at what these negotiations in German industry are doing,” said Esther Lynch, deputy general secretary of the European Trade Union Confederation.

A bumper pay deal for Germany’s steelworkers would also raise eyebrows among policymakers at the European Central Bank who are increasingly keen on raising interest rates in July to try to tackle record eurozone inflation of 7.5 per cent in April. Officials fear spiralling pay growth will mean price pressures becoming entrenched, risking a 1970s-style “wage-price spiral”.

Yet, with a cost of living crisis looming and unemployment in the 19-country bloc falling to a record low of 6.8 per cent in March, demand for better wages is strong. “I’m now hearing from almost every delegate examples of how low-paid workers can’t even meet the basics of paying for food and electricity, and they want action now,” said Lynch.

Unions across the eurozone have called for rises for the region’s worst off. FNV, the biggest Dutch union, which has almost 1mn members, wants the government to increase the minimum wage from €10 to €14 per hour and is pushing all companies to increase pay by €100 per month for all workers to offset the rising cost of living.

The German government has already committed to raise the country’s minimum wage from just below €10 an hour to €12 an hour in October. The country’s statistical office said this would affect 7mn workers, mostly women, equal to about one-sixth of the workforce.

France’s minimum wage has risen three times in the past year for a total increase of 5.9 per cent, but unions including the leftwing CGT, which represents over 700,000 workers, want it to go up by another 20 per cent to €2,000 per month.

In other countries — such as Belgium, Cyprus and Luxembourg — workers receive automatic pay increases when inflation rises.

The Bank for International Settlements, the central bank for central banks, said last week that, while indexation and minimum wage increases raised the likelihood of a wage-price spiral, the share of workers covered by these contracts was lower than in the past. Coverage had fallen from 24 per cent in 2008 to 16 per cent last year, it said. Union membership in Germany, meanwhile, has dropped from 36 per cent after the country’s reunification in 1990 to 16 per cent in 2019, according to the OECD.

Still, a win for IG Metall’s steelworkers could help bring to an end more than a decade of sluggish eurozone wage growth. Until now, pay rises in the region have been meagre, at just under 2 per cent in the fourth quarter from a year earlier. This is a big contrast with the US, where growth in average hourly earnings accelerated to an annual rate of 5.6 per cent in March.

Line chart of Hourly earnings in the private sector (rebased, 2015 = 100) showing Eurozone wages have lagged behind those of other advanced economies

But the ECB’s chief economist Philip Lane said on Thursday that the central bank’s new wage tracker, covering the region’s largest economies, showed pay deals agreed since January signalled wages were set to rise this year by around 3 per cent — a level not seen for a decade.

Wage growth is already accelerating in the Netherlands, which has one of the lowest rates of unemployment at 3.3 per cent and one of the highest rates of inflation at 11.2 per cent.

In April, Dutch companies and unions agreed deals to increase pay by 3.3 per cent on average, the biggest rise since the 2008 financial crisis, according to the employers organisation AWVN. “Wages are indeed increasing and what is being agreed seems to be higher than normal,” said Annika Heerekop of FNV. “It is not inconceivable that inflation will exceed 10 per cent this year. This still means a loss of purchasing power for many people, so as far as we’re concerned, wages need to go up a lot further.”

The worsening economic outlook could contain pay, however. Russia’s invasion of Ukraine has already had an impact on some sectors. Unions representing workers in the German chemicals industry — a sector acutely exposed to the conflict due to its reliance on natural gas — postponed talks in return for a one-off payment of €1,400 per worker.

Dietze said IG Metall was “monitoring the economic situation very closely and taking it into account when making collective bargaining demands”. However, she noted that while steelmakers are grappling with high energy costs, they were also benefiting from rising commodity prices. “The steel industry is running at full speed,” she said. “The employees quite rightly insist on being included.”

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