Real wages with biggest increase for more than two years
Real wages in Germany rose for the second time in a row between July and September - by 0.6% compared to the same period last year. This is the strongest growth in a long time. There are many reasons for this.
Rising wages and easing inflation have caused the purchasing power of German consumers to rise in the third quarter at the fastest rate for over two years. From July to September, wages rose by an average of 6.3% compared to the same period last year, outpacing price increases of 5.7%. As a result, real wages grew by 0.6 percent, according to the Federal Statistical Office. The last time there was a larger increase was in spring 2021.
This is the second increase in a row: in the second quarter, real wages rose by 0.1%, the first increase in two years. The rising purchasing power is good news for the German economy, which is threatened by a recession. It increases the likelihood that private consumption will grow again. This accounts for around two thirds of gross domestic product.
"The domestic economy should gradually gain momentum, as the real net income of private households should continue to rise due to high wage increases and easing price pressure," expects the Bundesbank, for example.
Inflation compensation premium and minimum wage increase
The inflation compensation premium contributed to the positive development of real wages in the summer. This tax- and duty-free payment of up to €3,000 per employee, which can also be paid out in several installments, is a voluntary payment by employers. "The increase in the minimum wage to 12 euros per hour in October 2022 also had a positive effect," it said.
Among full-time employees, the fifth with the lowest earnings achieved the strongest nominal wage growth at 10.3 percent. The increase for the top fifth, on the other hand, was below average at 5.6 percent. Low-income workers recorded strong wage growth of 7.7 percent. This is primarily due to the increase in the mini-job earnings threshold from €450 to €520 per month, which came into effect on October 1, 2022, as well as the minimum wage increase from €10.45 to €12. The nominal wages of part-time employees rose by 6.4 percent.
The increase in real wages, driven in part by the inflation compensation premium and the rise in the minimum wage, has resulted in a boost in consumption spending in Germany. As a consequence, Germany's GDP may potentially benefit from this positive development, given that private consumption makes up around two-thirds of the country's GDP.
Despite the strong wage growth among low-income workers, the top earners witnessed lower-than-average wage increases. However, with real wages on the rise and inflation being partly mitigated, overall consumer purchasing power is strengthening, which has been positive for Germany's economic outlook.
Source: www.ntv.de
