German State Sector Wins Pay Deal as Industry Frets Over Outlook

Germany’s coalition and the Verdi union yesterday secured a pay deal for government workers that may prompt similar demands in other sectors and add to industry concern about the rising costs of investing in the country.

Some 2.1 million federal and municipal employees will be paid 5.4 percent more retroactively from March 1 over two years, Interior Minister Thomas de Maiziere said after third-round pay talks ended in the city of Potsdam late yesterday. De Maiziere hailed the accord as “fair” and said he aimed to apply it to the pay of civil servants not represented by Verdi.

The deal is “moderate,” said de Maiziere in an e-mail, and “takes account of costs borne by taxpayers” while satisfying “justifiable” public-sector demands for a wage increase. Verdi, Germany’s second-biggest union, which also negotiates for service personnel in industry, asked for 6.7 percent more pay over one year.

The brokered accord may be less welcome to company executives preparing for wage talks in coming months in construction, banking and other industries. Companies are increasingly turning abroad as labor and energy costs make Germany less attractive for investment, the DIHK industry and trade chambers said on March 31.

Policy-makers in Berlin gained a “first warning signal,” the DIHK said after it ran a March survey of 2,500 member companies that showed domestic cost factors rising in foreign investment decisions for the first time in 11 years. “The big winners are our European neighbor states,” said the group, which represents 3.5 million German companies.

Gross Wages

German gross wages before inflation may increase 2.7 percent this year compared with 2.3 percent last year, the Economy Ministry forecast in January, adding that it expects domestic demand will drive economic growth of 1.8 percent, a fourfold increase on 0.4 percent in 2013.

With the economy improving, Chancellor Angela Merkel’s “grand coalition” of Christian Democrats with the Social Democrats has signaled support for easing wage moderation that helped cut unemployment from a postwar record of 5.2 million in 2005 to 2.9 million last month.

“Good” wage accords will support economic growth, boost imports and help cut Germany’s current account surplus, Economy Minister Sigmar Gabriel said in parliament on Feb. 13.

Finance Minister Wolfgang Schaeuble has set aside 500 million euros ($689 million) in this year’s budget to finance the expanded federal payroll bill, Nordwest Zeitung newspaper reported on March 31.

The pay deal still needs the approval of Verdi’s national executive. It does not cover state workers, who negotiate separately.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net James Kraus, John Simpson

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