Market forces do not negotiate: empty labor market jeopardizes the fight against inflation

The "concerted action" is intended to persuade employees to restrain their wages.

Market forces do not negotiate: empty labor market jeopardizes the fight against inflation

The "concerted action" is intended to persuade employees to restrain their wages. In view of the great shortage of staff, it could be employers of all people who are fueling inflation in their distress. There are already signs of such a development in the first sectors.

Employees, employers, the federal government and also the Bundesbank and the "business wise men" are looking for ways in the "concerted action" to compensate for the hardship caused by the enormous price increases without further heating up inflation. "Wage moderation" is the keyword here. Employees, represented by the trade unions, should be satisfied with comparatively small increases in income and be relieved in other ways, for example through tax breaks. But even if everyone present in this group, which met for the first time in the Chancellery on Monday, should agree, it is questionable whether this will be reflected in reality at all. Because the actors currently decisive for wage development are not represented at all in the talks and will not be negotiated with: the forces of supply and demand on the labor market.

The job market is empty like never before. According to the latest figures from the Institute for Employment Research, companies in Germany were looking for 1.7 million employees in the first quarter. Not only highly qualified specialists, but also employees in all sectors and areas have long been in short supply. As a result, companies are often willing to pay high salary increases in order to attract or retain employees for important positions.

This situation on the labor market is fundamentally different from the situation at the end of the 1990s, for example when the collective bargaining parties, mediated by the Chancellery, formed what was then the "Alliance for Jobs". Against the background of the mass unemployment at the time, the trade unions should practice wage restraint in return for securing jobs. At present, however, hardly any employee has to fear for their job - on the contrary.

This puts the unions in a strong negotiating position, but also under pressure. In some sectors it can already be observed that the wages negotiated by them are lagging behind the general wage increases, says labor market expert Hagen Lesch. "This development, which is known in technical terms as wage drift, is currently occurring primarily in areas of the service sector in which the unions are rather weakly represented," says the economist from the German Economic Institute (IW). "In the industry, where the unions traditionally have a strong position, this has not yet been observed."

The wage drift could ensure that the "concerted action" becomes a waste. If employers, in their staff shortages, ignore the moderate wage increases agreed in collective agreements and pass the additional costs on to consumer prices, the dreaded wage-price spiral could be set in motion and fuel inflation in the longer term.

In addition, such a development could seriously damage the trade unions and the collective bargaining partnership established in Germany. The historical model for the current chancellery round, the "Concerted Action" of 1967, should serve as a warning. At that time, the trade unions, with reference to social responsibility in the fight against inflation, agreed to wage agreements with a significant loss of purchasing power. In view of the good economic situation in most companies, many employees were not satisfied with this. Wildcat strikes broke out in many industries and unions were forced to adjust course after fierce internal conflicts.

The new "concerted action" could still make a certain contribution to fighting inflation, says economist Lesch. To do this, however, it should not be guided by the historical model and should refrain from a formal agreement between the parties to the collective bargaining agreement. Instead, the federal government could offer relief such as tax-free bonuses not only to employees covered by collective agreements, but to all employees. That could somewhat cushion inflation expectations and thus the pressure on wage developments. However, whether that is enough to prevent a wage-price spiral will largely depend on the balance of power on the labor market.

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