Editorial | Wage earners give inflation a head start

Europe’s wage earners do not seem to seek full compensation from inflation – even if there are pressures and opportunities.

European wage earners negotiate their salary increases in a tight gap. The pressure is increasing, as real earnings are falling due to inflation. According to the most recent measurement, the value of money in the euro area fell by 10.7 percent in October compared to a year ago.

Wage earners have the advantage offered by the labor force situation. When structural unemployment is removed from Europe’s employment figures, the end result is that Europe has practically full employment. There is already a severe shortage of workers in a few sectors of business life.

The metal industry’s IG Metall, which represents nearly four million German wage earners, said it is seeking eight percent raises. Due to inflation, the pressures are also strong in other sectors and in all countries.

The increase percentages of the requirements may seem harsh, but in Germany, for example, the agreed increases have usually been about half of the required increases. Wage earners do not seem to seek full compensation from inflation – even if there are pressures and opportunities.

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If responsibility wins, the situation will be a relief for the European Central Bank (ECB). The central bank has been criticized for driving the eurozone into recession by raising interest rates: interest rates cannot influence energy-driven inflation. Critics should note that inflation has already spread beyond energy prices. The ECB has to monitor the wage cycle most closely. If temperance really wins, the critics will get what they want: the central bank can relax the tightening of monetary policy.

ECB has needed national economic policy support for monetary policy. Germany offers an interesting “triad”. Companies can give a tax-free lump sum to employees. In this way, perhaps a solution can be reached, where wages are not locked into hard, deep table increases that extend into the recession – a time when companies’ ability to pay wages may be much weaker than it is now.

The editorials are HS’s positions on a current topic. The articles are prepared by HS’s editorial department, and they reflect the journal principle line.

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