German public sector workers seal 2.8% pay hike

The wage pact for 1.1mln employees is likely to be extended

  
Commuters wear face masks as they wait on a platform of the main train station Hauptbahnhof, as the spread of the coronavirus disease (COVID-19) continues, in Berlin, Germany, October 16, 2020.

Commuters wear face masks as they wait on a platform of the main train station Hauptbahnhof, as the spread of the coronavirus disease (COVID-19) continues, in Berlin, Germany, October 16, 2020.

Reuters/Fabrizio Bensch

BERLIN- German labour unions on Monday secured a 2.8% wage increase for over a million public sector workers at the federal state level, a deal analysts said would not kick off a dangerous wage price spiral in Europe's largest economy.

Reached by the Verdi union and employers after marathon talks stretching over the weekend into Monday, the deal includes a tax-free one-off "pandemic bonus" of 1,300 euros ($1,467.18), unions said. Apprentices and students would get 650 euros.

"That's quite a respectable result," Verdi union chief Frank Werneke said. "It brings tangible income improvements for a number of healthcare workers."

The deal, which runs for 24 months, fell short of the unions' initial demand for a pay rise of 5% for 12 months.

The wage pact for 1.1 million employees is likely to be extended to include 1.2 million civil servants working for local governments and authorities in Germany's 16 states.

Berenberg Bank economist Holger Schmieding said the agreement was a good sign for public sector workers, especially the ones employed in health care.

"But the 2.8% wage increase, starting from December, does not go beyond what is financially possible and economically sensible," he said. "This deal will not start a wage price spiral."

The accord fits into the long-term picture where increasing wage pressure and labour shortages may kindle slightly higher inflation than what Germany experienced over the past two decades.

"In the long run we see around 2% inflation in Germany. The wage deal fits this outlook. It's not too much, not too little. Hopefully, this deal will set an example for other sectors," Schmieding said.

Sebastian Dullien, a wage expert at the German macroeconomic policy institute IMK, said there were also no signs of excessive wage settlements in other European countries.

"As long as actual inflation falls noticeably again in 2022 as predicted, the European Central Bank does not need to worry about inflationary cost pressure from the wage side," he said. ($1 = 0.8861 euros)

(Reporting by Michael Nienaber, Klaus Lauer and Rene Wagner Editing by Mark Heinrich) ((michael.nienaber@thomsonreuters.com; +49 30 2888 5085; Reuters Messaging: michael.nienaber.reuters.com@reuters.net www.twitter.com/REUTERS_DE www.reuters.de))


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