An Informal Pact to Secure Employment

Ten years ago Germany’s social partners and the government agreed on employment-oriented wage policies.

Formally the social pacts failed. Nevertheless, from a macroeconomic point of view wage policies between 2000 and 2009 focused on employment security. Indicators which prove this are unit labor costs which remained stable and effective wages which developed in line with collectively agreed wages. In manufacturing actual earnings even rose more than the collectively agreed wages. However, when adjusting for inflation real gross and net wages only increased marginally and even declined per employee. The reasons were rising energy prices and reductions in working hours per employee so that there is no pent-up demand for more expansive wage policies in the coming years. When the present recession is over, it will be necessary to use the rising productivity for reducing unit labor costs, which have been climbing since the beginning of the downturn and for lowering the costs for short-time work. Heterogeneous sectoral developments should be accounted for by allowing for firm-based differentiations of collectively agreed regulations.