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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: smolejv@gmx.net who wrote (17957)4/8/2002 10:52:53 AM
From: elmatador  Read Replies (1) of 74559
 
German wages
Published: April 7 2002 20:03 | Last Updated: April 7 2002 20:05

This week, the noise level over German wage demands is likely to pick up. On Monday, IG Metall, the 2.7m-strong metal workers union that sets the tempo for wage negotiations across Germany, plans warning strikes to support its pay claims. The European Central Bank is watching closely, after highlighting wage negotiations as a key concern for both inflation and growth. IG Metall's bark is often worse than its bite, hence expectations of a settlement below half its 6.5 per cent initial demand. Anything above that would make the ECB more hawkish. Even more seriously, it could depress profitability - and increase job losses - if overcapacity has robbed companies of the ability to pass on higher wages through price increases.

Several factors could stiffen IG Metall's backbone. They include higher oil prices - another of the ECB's concerns - and German elections. The noxious effects of energy prices on wages will be fresh in workers' minds: according to UBS Warburg, real wages fell 0.6 per cent in the 12 months to December, after 2.5 per cent growth in 1999-2000. Meanwhile, higher petrol prices this year may already be dampening spending just when unemployment appears to have troughed.

But employers, too, will want to dig in their heels. Manufacturing productivity fell sharply last year, driving up unit wage costs. A moderate settlement is vital to underpin Germany's recovery. The risk is that it may involve giving ground to unions on equally vital labour market reforms.
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