Germany raises wages for nearly 2 million workers

Nearly 2 million workers in Europe’s largest economy are having to raise wages.

Germany’s three political parties agreed to form a new government on Wednesday, with leftist Social Democrat Olaf Scholz to succeed Angela Merkel as chancellor. after protracted coalition negotiations.

As part of the union deal, the country plans to raise the minimum wage to €12 ($13.46) an hour, from the current 9.60€ ($10.77) an hour.

According to Carsten Brzeski, an economist at ING, the move could boost the incomes of nearly 2 million people in Germany on minimum wage, or about 5% of workers. He said the move “clearly makes sense.”

The minimum wage has been set to increase to €10.45 ($11.72) by July 2022. The text of the union agreement does not state when the larger one-off increase will come into effect. .

UBS economist Felix Huefner said the move would “boost overall wage growth” across the German economy, while warning it could “contribute to broader wage pressures”. .”

Germany’s hawkish central bank took the unusual step of publicly criticizing the measure this week, calling it “disturbing”. It said it would have a dramatic impact on the wages of higher earners.

Inflationary pressure

Economists and policymakers around the world have been closely monitoring wage growth as a major component of inflation. In Germany, inflation in October stood at 4.5%, the highest level in nearly three decades, as energy prices rose and food prices rose.

Germany first introduced a national minimum wage of €8.50 ($9.54) in 2015.

Support for minimum wages in Europe has grown as the power of labor unions has waned. The European Commission says there has been a decline in the share of EU workers with collective bargaining agreements between 2000 and 2015, particularly in Central and Eastern Europe, which has fallen sharply.

A new draft EU law published earlier this month looks set to boost minimum wages across the bloc with new requirements.

“During the previous crisis, lowering the minimum wage and canceling industry collective bargaining was the harsh antidote prescribed for many member states,” said EU Member of Parliament Agnes Jongerius, who sponsored the measure. , said in a statement. “Now, we are fighting to increase the statutory minimum wage and strengthen collective bargaining in Europe.”

Germany’s minimum wage is already among the highest in the European Union.

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