Real Wages in Germany See Significant Increase

Real wages in Germany have experienced their most substantial increase in more than a decade, marking a significant shift for workers across the country. According to the Economic and Social Research Institute (WSI) of the Hans Böckler Foundation, real wages—wages adjusted for inflation—rose by an impressive 3.1% during this period. This surge represents the most substantial annual increase in real wages since the early 1990s.

This growth follows years of real wage declines, with 2021 and 2022 seeing particularly sharp drops. The robust wage increases this year have, for the first time, compensated for nearly half of the purchasing power losses that occurred during those years. However, experts caution that despite this recovery, the inflation-adjusted wage levels still remain significantly below the peak reached in 2020.

Impact of Collective Bargaining Agreements

The increase in real wages can be attributed to a combination of factors, including strong collective bargaining agreements and a notable decrease in inflation. In nominal terms, wages in the first half of 2024 rose by 5.6%, while inflation averaged 2.4% during the same period. The collective agreements negotiated in 2024 were particularly significant, with average wage increases of 7.6% in key sectors such as construction, retail, and wholesale trade. These sectors had not seen major wage increases for several years, making this year’s agreements particularly impactful.

Additionally, the WSI reported that new collective agreements were reached for approximately 8.1 million workers during the first half of the year. Nearly 12 million more employees benefited from wage increases that were previously negotiated in 2023 or earlier, further contributing to the overall rise in real wages.

Inflation Compensation Payments Boost Wage Growth

Another critical factor contributing to the rise in real wages has been the implementation of inflation compensation payments. These one-time payments, which varied between €100 and €3,000 depending on the sector, were introduced to help offset the impact of rising consumer prices. These payments were exempt from taxes and social security contributions, making them a significant addition to workers’ incomes. However, as these payments are not recurring, their absence in future wage calculations is expected to temper wage growth in the coming years.

Outlook for 2025: Slower Growth Expected

Despite the positive developments in 2024, experts at the WSI, including tariff expert Thorsten Schulten, warn that this trend may not continue at the same pace in 2025. The inflation compensation payments, while beneficial in the short term, are not expected to be repeated, which will likely lead to a reduction in real wage growth next year. Schulten predicts that while wages will continue to rise, the increases will be more modest compared to the significant gains seen this year.

Moreover, while the recent wage increases have provided a much-needed boost to workers’ purchasing power, the economic recovery is still incomplete. The overall wage levels, adjusted for inflation, remain below the highs of 2020, indicating that there is still a considerable gap to be closed in future negotiations.

Conclusion

The sharp increase in real wages in Germany during the first half of 2024 marks a significant recovery after years of decline. While this growth has helped to offset some of the purchasing power losses experienced in previous years, the economic outlook suggests that wage growth will slow down in 2025. As Germany continues to navigate its economic recovery, the outcomes of future collective bargaining agreements will play a crucial role in determining whether this upward trend in real wages can be sustained.