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Workers of the Euro Area Rise Up and Ask for More Pay, Maybe

  • Unions entering pay talks can point to solid economic growth
  • But even Germany has yet to see much of a pickup in wages

Euro-area labor representatives are about to test whether the broadest economic growth in years can finally deliver a decent pay rise.

Unions in the currency bloc’s largest nations, interviewed by Bloomberg this month, blame lackluster pay gains on dampened expectations among workers since the region’s financial crises, and reforms that have weakened their negotiating power. Now they can point to four years of economic recovery and the return of inflation as they urge employers to countenance bigger increases in collective-bargaining agreements.

Better pay is critical for more than just workers. Governments are concerned about any revival in populism and the European Central Bank, which meets to set policy in a week, is stuck providing extraordinary stimulus as it strives to reach its inflation goal. ECB President Mario Draghi has expressed particular concern that meager pay is holding back the economy.

“We agree with Draghi,” said Carlos Martin, head of the economic department at Comisiones Obreras, the largest Spanish trade union. “Who’s seen a real pay hike in Spain? Certainly not the working class.”

Spain: Healing Scars

In Spain, where unions and business groups are currently in talks over next year’s pay, there are nascent signs that raises may be on the way.

The nation is a clear example of the shock to workers from Europe’s financial travails. Unemployment trebled to more than 26 percent and even now, with the rate below 19 percent, the country accounts for a quarter of all the jobless in the currency bloc. Martin says the scars, plus labor reforms under Prime Minister Mariano Rajoy, have given employers the upper hand.

Annual Spanish wage and salary growth since the euro area exited recession in 2013 has averaged just 0.8 percent. Yet the economy, the bloc’s fourth-largest, is set to grow at least 3 percent this year, and consumer prices are rising again after two years of deflation.

Rajoy’s government, which lost its majority in 2015, backs higher wages. Budget Minister Cristobal Montoro favors pegging public-sector raises to growth rather than inflation, which the government sees as closing the year below 1 percent, and Labor Minister Fatima Banez has called for a more inclusive recovery.

Italy: Two Fronts

Italian workers look set for a far tougher battle. The government and unions are currently negotiating small pay gains for state employees, but that’s after years of freezes, and the scope for more in either the public or private sector is blighted by the economic outlook. Wage growth there has averaged 0.3 percent since 2013.

The region’s third-biggest economy is predicted to grow 1.2 percent this year and just 1 percent in 2018, according to estimates compiled by Bloomberg. Riccardo Sanna, chief economist of Italy’s main worker union CGIL, says the government must end a hiring freeze and boost investment.

“We need to act on two fronts -- the first being the classic role of worker union that is of course to call for higher wages,” he said. “The other pillar of our action must of course be job creation.”

France: Macron Anti-Bump

In the euro area’s second-largest economy, French unions must face a new president who has already canceled a pay bump for public-sector workers. Emmanuel Macron is also embarking on an overhaul of labor laws to weaken central bargaining and shift negotiations to the company level.

Government employees represent about a fifth of the French workforce and government spending accounts for more than 56 percent of the economy, meaning Macron’s pay policy reverberates through the private sector. Pay growth there has averaged 1.6 percent over the past four years.

Germany: Fully Loaded

If there is one euro-area economy that shows how tough it is to ignite wage growth in the post-crisis era, it’s the biggest -- Germany.

German workers have more bargaining clout than others, courtesy of record-low unemployment and booming exports, but annual wage growth since 2013 has only averaged 2.1 percent. Data on Thursday showed inflation running at 1.6 percent.

The country’s metal and electronic industry union, with 3.8 million members, will test the mood this fall when it starts crafting pay demands.

“The fruits of our exports aren’t being properly passed on to workers,” said Gustav Horn, director at a research foundation linked to the German Trade Union Confederation. “Rising wages would be helpful in creating purchasing power which then translates into higher consumption.”

While the country’s central bank says pay growth should improve next year, Horn sees a problem in downward pressure from underutilized employees who would like to work more.

Germany is also showing that money isn’t everything. More than half the members of the railway and transport union decided to forgo a 2.6 percent pay raise from next year in order to receive six extra days of vacation.

Be Patient

Sluggish pay is to some extent a global phenomenon, including in nations with tight labor markets. U.S. earnings due on Friday are likely to reinforce the story of subdued increases, despite a jobless rate of just 4.4 percent and a ninth year of economic expansion.

In the U.K., figures on Wednesday showed real incomes dropping at the fastest pace since August 2014 even with the lowest unemployment in 42 years.

The ECB’s chief economist, Peter Praet, says the relationship between unemployment and wages isn’t broken -- but it has become a slower process that requires patience. That might be difficult for unions to hear.

“This recovery is different,” said Spain’s Martin. “Workers don’t want to risk their job, that’s one of the scars produced by the crisis. People don’t strike anymore. It’s hard to put pressure on companies when you’re scared.”

— With assistance by Mark Deen, Lorenzo Totaro, and Kevin Costelloe

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