Sports clubs can suffer streaks of losses, as can companies. On the other hand, it is less anchored in the public consciousness: Employees can also be confronted with losses. Fortunately, wages and salaries rarely fall. Recently, however, quarters in which income lags behind inflation have become more frequent.
It was the same in the first quarter of 2022: Between January and March, wages and salaries rose by four percent year-on-year nominally – i.e. in the amount shown – but goods and services in Germany rose by 5.8 percent in the same period. This discrepancy results in a real wage drop of 1.8 percent.
It wasn’t the first quarter that Germany’s workers saw falling real wages. Between October and December, i.e. in the fourth quarter of 2021, real wages had already fallen by 1.4 percent compared to the previous year.
Overall, after deducting inflation, wage developments have been negative in five of the past eight quarters: employees can therefore purchase fewer goods and services with their salary.
To put this into perspective: in the entire ten years before that this was only the case in three quarters, and then only with small real wage losses of minus 0.1 to minus 0.3 percent. However, consumer price increases during the period averaged 1.4 percent. Nominal wage increases of 2.4 percent were enough to achieve a comfortable real increase of one percent.
The spike in inflation since the second quarter of 2021 has undone that. Some workers can expect wage increases of three, four, or maybe even five percent this year. But even this plus is not enough to offset the higher cost of living. The majority of working people have no chance against inflation.
And economists have little hope of improvement this year. At 7.9 percent, the inflation rate has just reached its highest level since the 1970s. It was only in the winter of 1973/74 that statisticians noticed a sharp increase in consumer prices (at that time by a full eight percent compared to the previous year).
“The current losses in real wages are mainly due to unexpectedly high inflation, which is primarily due to high energy and food prices,” says Sebastian Dullien, scientific director of the institute for macroeconomics and business cycle research (IMK), which is close to the trade union.
Like other economists, Dullien attributes much of the current jump in consumer prices to Russia’s war of aggression in Ukraine. Since the war is ongoing and the consequences will be felt for a long time, the price peaks will probably not recede in a few weeks or months. Russian aggression has not only caused global energy costs to explode, but also made agricultural products such as wheat extremely expensive.
In addition to the war in Ukraine, however, the tense world trade is contributing to the upward pressure on prices. In particular, important preliminary products for industry that are manufactured in China have been arriving in Europe for months with a delay. There is already talk of deglobalization because of the disrupted supply chains and the loss of trust.
This dangerous mixture has what it takes to eat up years of real wage gains in Germany and Europe. “An average inflation rate of eight percent is now possible for the year as a whole,” says Carsten Brzeski, chief economist for the euro zone at ING.
There are hardly any employees who will make sufficiently large salary increases in 2022 to absorb this inflation: “We will also see a slump in real wages this year.”
Even the widely lamented shortage of skilled workers changes little. Ironically, in the 1970s, which often have to serve as a symbol of economic stagnation, there were real wage increases in this country, even during the oil crisis, workers had more in their pay packets in real terms. But today other economic laws apply.
“Today, automation and globalization seem to have taken away the scope for higher wages,” says Brzeski. The first signs of deglobalization (fewer German companies want to invest in China, among other things) have not changed anything.
However, there are also solid reasons for companies not to be overly liberal when it comes to wages. “Companies are also feeling the effects of the increased costs, and the shortage of labor also has something to do with a lack of qualifications,” explains Dullien.
In other words: Where there is a lack of applicants with the required knowledge, higher wages alone will not help either. The IMK researcher expects an average wage increase of at least three percent nominal. A real wage increase in 2022 is almost impossible.
In some areas, attempts will be made to compensate for the shortage of skilled workers with higher wages. At the same time he criticizes: “When it comes to the lack of skilled workers, it is noticeable that many companies complain about this shortage, but are obviously not prepared to actually pay higher wages.”
A rethink is required here if this problem is really as urgent as it is often portrayed. Collective bargaining agreements could only take countermeasures in the medium term, since they are designed for the long term: “We are experiencing a kind of surprise inflation. This increase was not yet foreseeable in the case of wage cuts, which are responsible for the current wage level.”
The experts agree that in 2022 and in the coming years there will again be major differences between the economic sectors in terms of wage and salary developments: “A distinction will then be made between sectors that will benefit from the turning point and those that will not between sectors in which the shortage of skilled workers can be automated away and sectors in which the shortage of skilled workers can be compensated for with higher wages,” says Brzeski.
Finally, there are also sectors of the economy that continue to be subject to globalization and those that are more focused on the domestic or European economy.
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