According to preliminary annual financial statements submitted by the Collective Agreement Archive of the Hans Böckler Foundation’s Institute of Economic and Social Research (WSI) at the beginning of December, this year’s wage increases have all but secured the purchasing power of employees covered by collective wage bargaining agreements for 2023. However, they were not enough to make up for the considerable losses in real wages of the two previous years due to high inflation. On the contrary, since prices rose significantly more than wages in 2021, and particularly in 2022, collective wages in real terms are back to 2016 levels. In the 2010s, collective wages rose continuously in real terms.
In 2023, collective wages in Germany rose nominally by an average of 5.6 percent over the previous year; the growth rate was therefore more than double that of 2022 when collective wages rose by only 2.7 percent. However, this high growth in collective wages occurred against the background of very high rates of inflation, which estimates suggest could reach 6.0 percent. This would result in an average decrease in collectively agreed wages of 0.4 percent in real terms. Although this figure does not take into account the effect of the inflation adjustment premiums, which were exempt from tax and contributions, agreed in many sectors. The net result is therefore likely to be positive for the large majority of employees.
One-off payments exempt from tax and contributions
What exactly does this mean? Most collective wage agreements in 2023 included what were known as inflation adjustment premiums. These were one-off payments that were exempt from tax and contributions which, compared to a regular pay rise, enabled employees to earn a higher net wage and employers to reduce their labour costs. The inflation adjustment premiums ranged from between €1,000 and €3,000 depending on the relevant pay scale and were to be paid out over a period of two years in several instalments or as additional monthly payments.
Since the savings on tax and contributions for an inflation adjustment premium vary considerably depending on the recipient’s tax bracket and household context, they are treated as one-off gross payments in the calculation of average collective wage development. In order to assess the additional savings on contributions and tax from the inflation premiums, the WSI Collective Agreement Archive also implemented model calculations for individual sectors – based on average rates of tax and contributions.
Lower collective wage groups benefit
Findings: when the “gross-for-net” effect of the inflation adjustment premiums is taken into account, the collective wage increases in 2023 were significantly higher in some sectors. For example, collective wages in the public sector (central and local government) increased by 9.8 percent when taking account of tax and contributions savings, without these the increase was 6.8 percent. According to the WSI, overall, the tax-free inflation adjustment premiums paid out in 2023 ensured that wages in many collective wage sectors not only kept pace with inflation but, in some cases, even outpaced it. On top of which, the inflation premiums have a clear social component and lead to disproportionately high wage increases for the lower collective wage groups.
In calculating average collective wage increases, the WSI Collective Agreement Archive took into account collective agreements for a total of 14.8 million employees. These include both collective wage increases from the previous year, which would take effect in 2023, and the new agreements reached in 2023.
Outlook for 2024
Given that the rate of inflation is falling quickly, according to WSI experts, pressure on the collective wage parties will ease somewhat in 2024. However, considering the real wage losses from previous years, there is still some catching up to do. Collective wage bargaining in the major sectors, such as the construction industry, the chemical industry and – in the second half of the year – the metal and electrical industry, will begin in 2024.