(Bloomberg) -- German public-sector workers are seeking an 8% salary increase to boost consumers’ ability to spend, a move that signals tough negotiations with employers as the economy heads for the second consecutive annual contraction.
“The public-sector wage round, like all the upcoming rounds, is particularly concerned with strengthening purchasing power and thus domestic demand,” Verdi labor union chief Frank Werneke said in a statement on Wednesday. “This is important for economic growth in Germany.”
The demand by some 2.5 million workers at the federal and municipal level comes as the Europe’s biggest economy struggles to shake off a prolonged period of weakness. The government in Berlin lowered its 2024 forecast on Wednesday and now predicts a contraction of 0.2%.
Industrial firms in particular are suffering from subdued demand abroad as well as structural problems at home, including high energy costs and bloated bureaucracy.
Workers in the German manufacturing sector are still demanding a pay hike of 7%, which employers have called unrealistic in the current environment. Karin Welge, who’ll represent the municipalities in the public-sector talks, has also said such a strong increase wouldn’t be appropriate because of tight budgets and inflation close to the 2% goal.
The German wage negotiations are a key test of the European Central Bank’s assumption that a substantial slowdown in pay growth next year will help bring price growth back to the target in a sustainable manner. While an 8% raise over 12 months as demanded by Verdi would challenge that view, the final result of the negotiations will probably be lower.
Apart from more pay, Verdi is also demanding additional holidays and greater flexibility on working hours.
“The consequences of unfilled positions and staff shortages are being felt more and more by employees of the federal government, municipalities and municipal companies,” Werneke said.
German Interior Minister Nancy Faeser said in a statement that she aims to reach a “fair agreement,” highlighting that “public-service workers are the backbone of our state.”
Still, “the demands of the unions are very high,” she said. “The budget situation is tense, especially in the municipalities.”
(Updates with comment from interior minister starting in ninth paragraph)
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