Real wages in Germany fall for second year in a row

On paper, wages in Germany rose significantly in 2021, but in real terms, taking into account the sharply rising consumer prices, people actually earned less. Experts expect salaries to drop even further this year. 

Rising consumer prices eat up wage growth in Germany

For the second year in a row, wage growth in Germany failed to outpace rising prices for goods and services in 2021. Faced with the strongest inflation rate in almost three decades, people working in Germany experienced a drop in their real wages in 2021 - on top of the drop experienced in 2020, the first year severely impacted by the coronavirus pandemic. 

According to new figures released by the Federal Statistical Office (Destatis), gross monthly earnings, including bonuses and special payments, increased by an average of almost 3,1 percent in 2021. However, these wage increases were completely eaten up by a 3,1-percent rise in consumer prices. The statisticians put the drop in real wages in 2021 at 0,1 percent. 

Rising inflation means real earnings will likely fall in 2022 as well

In 2020, real wages fell by 1,1 percent, a trend that was driven primarily by the increased use of Kurzarbeit (short-time working) as employees across the country had their working hours cut. In 2021, however, Kurzarbeit was used less frequently. “This led to increased gross monthly earnings for employees since weekly working hours returned to normal,” Destatis explained. 

However, as the economy bounced back after the high point of the crisis, rising demand also led to global supply issues, particularly in the energy sector, which in turn has pushed inflation to record heights. This means that the extra income did not translate into extra purchasing power for workers. 

Economists don’t expect this trend to reverse anytime soon. Current forecasts predict that real wages will fall once again in 2022, with inflation slated to reach new heights this year. Ifo, an economic research institute based in Munich, recently increased its inflation forecast for 2022 from 3,3 to 4,0 percent. If that materialised, it would be the biggest increase since 1993, when inflation hit 4,5 percent.