Underpaid Germans, Your Wait May Be at an End

Underpaid Germans, Your Wait May Be at an End

That German wages have grown very slowly given the country’s economic buoyancy is well known. The news, according to Oxford Economics economist Ben May, is that the long-awaited pick-up may be finally on the horizon.May has looked at what economists call NAIRU, or Non-Accelerating-Inflation Rate of Unemployment. In other words, this is the level of joblessness that neither pushes prices up because the economy is running too fast, nor drags on them.As the chart above shows, Germany’s labor market has been increasingly on the tight side since 2011. The number of people out of work has risen in only one of the past 28 months and joblessness in Europe’s largest economy is set to remain at a record-low 6 percent in November, according to economists polled by Bloomberg.So why have wages failed to respond? The answer, for May, is the extremely low inflation in Germany and the euro area at large. In fact, even if nominal wages have been muted, real wages – taking price increases into account – have been growing at a faster pace than before the global financial crisis.Down the road, wages will need to continue growing faster than inflation if workers are to reap the benefits …

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