Real wages are falling at record speed due to high inflation

Dhe real wages in Germany fell at record speed last year due to the highest inflation in the history of the Federal Republic. At 3.4 percent, the gross monthly earnings of employees including special payments grew more strongly than at any time since the beginning of the time series in 2008 Federal Statistical Office announced on Tuesday. At the same time, however, consumer prices increased more than twice as much at 7.9 percent. As a result, real wages fell by an average of 4.1 percent.

It is the third straight year of real wage declines. While in 2020 the increased use of short-time work in particular contributed to the negative development in nominal and real wages, in 2021 and especially in 2022 high inflation consumed nominal wage growth. According to preliminary data, 2022 was the strongest fall in real wages in Germany since the start of the nominal wage index time series in 2008.

5.2 percent wage increase expected for 2023

According to experts, the balance sheet this year should not be quite as negative. All leading institutes expect inflation to fall. The keel Institute for World Economy (IfW), for example, predicts an inflation rate of 5.4 percent, which should fall to 2.2 percent in 2024. The Federal Ministry of Economics assumes that gross wages and salaries per employee will increase by 5.2 percent in the current year.

Wage increases, some of them significant, were agreed in many sectors. The approximately 3.9 million employees in the metal and electrical industry, for example, will receive 8.5 percent more money in two steps and a one-off payment of 3,000 euros net. The Verdi union is currently demanding a wage increase of 15 percent for twelve months for Deutsche Post employees because of high inflation.

Some expect that private consumption will slow down the economy in view of the high inflation. The federal government also expects private consumer spending to fall this year in real terms. Nevertheless, the economy as a whole is expected to grow, even if only by 0.2 percent.

The nominal wage index, on which the calculations of the Federal Statistical Office are based, shows the development of the gross monthly earnings of employees including special payments.