Since the mid-nineteen-nineties employers and unions in Germany have pursued a moderate wage policy. This has improved unit labour costs and international competitiveness. At the same time, this wage policy and the labour market reforms of 2003 to 2005 have together contributed to a gradual increase in employment over the last few years. The safe-guarding of well-paid manufacturing jobs and high employment growth have both served to stimulate consumer demand. In a phase of growing volatility in the economic cycle consumption helped to sustain economic development. In the long-term, maintaining a policy of aligning wages with national productivity growth has thus paid off. Adopting an expansive wage policy to reduce foreign trade imbalances would deter domestic investment without solving the structural problems of the countries with trade deficits.
Wage Policy in Times of Foreign Trade Imbalances and Volatile Growth
German Economic Institute (IW)
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