The Focus Is on Securing Jobs
CommentZEW Economist Friedhelm Pfeiffer on the Collective Bargaining Agreement of the German Federal States
On 9 December 2023, the tariff community of the federal states, TdL, along with the United Services Union ver.di and the German Civil Service Federation (dbb), reached a new wage agreement. It includes an inflation compensation bonus and a gradual wage increase, applying to around 1.1 million employees. Friedhelm Pfeiffer, deputy head of the Research Unit “Labour Markets and Social Insurance” at ZEW Mannheim, explains:
“Collective bargaining for the public sector in the federal states has reached a conclusion. According to ver.di, the key results include that employees will receive a tax- and social security-free inflation adjustment of 3,000 euros, staggered until October 2024. From November 2024, there will be a fixed increase of 200 euros, followed by a 5.5 per cent pay rise from 1 February 2025. The agreement has a term of 25 months.
Painful Compromise for both Negotiating Parties
Both parties agreed to a somewhat painful compromise. In times of tight budgets, wage increases represent a considerable burden for the federal states. Nevertheless, they also want to remain attractive for skilled workers in order to be able to fulfil their tasks in areas such as internal security, health and education. Higher collectively agreed wages enhance their competitiveness for skilled labour. On the other hand, the employees have not succeeded in compensating for the real wage cuts since 2021 with the agreement; they have focused more on job security and have therefore only made fairly moderate demands.
The agreement should contribute to making further real wage cuts in the next two years less likely. However, real wage increases for the majority of employees are also rather unlikely. This also applies to the wage bargaining in all sectors of the economy as a whole, not just the public sector. Thus, the expansive economy-wide employment impact, which has contributed to the current peak in overall employment in Germany, resulting from the real wage cuts for the majority of employees in the last two years, will gradually come to an end.
Lower Wage Groups Benefit more
Due to the agreed flat-rate inflation compensation for all and the fixed amount, the lower wage groups stand to benefit proportionally more than the higher wage groups. This shift mirrors a trend observed in many recent wage agreements, signifying a gradual reversal of the longstanding increase in wage inequality. Studies suggest that manual tasks, less easily replaceable by AI or robots, are gradually becoming better paid again.”
