FRANKFURT (MNI) – Labour costs in Germany continued upwards in the
first quarter of 2010, as both salaries/wages and social contributions
accelerated, and 4Q’s change was revised up sharply, the Federal
Statistical Office reported on Wednesday.

After a 0.1% uptick in 4Q (revised up from -0.5%), the 0.7%
increase in 1Q left labour costs 1.0% higher on the year after +0.4% in
4Q.

Gross salaries and wages jumped 0.6% in 1Q after stagnating in 4Q,
resulting in an annual rise of 0.8%. Social contributions were up 0.9%
on the quarter and 1.7% higher on the year.

These pay gains have so far had little evident impact on
employment, which has remained remarkably resilient since the onset of
the financial crisis.

According to Eurostat, Germany’s jobless rate fell for the second
consecutive month in April to 7.1%, the lowest of the four largest
Eurozone economies and well below the EMU average (10.1%). The number of
employed jumped by 45,000 in April, adding to the 86,000-gain since
January.

The robustness of the German labour market is in large part due to
labour market reforms, which have enabled employees to work off saved
overtime hours, as well as the government subsidies that have helped
firms hold onto staff instead of cutting their workforce. As these
subsidies are scheduled to be phased out towards the end of the year,
some firms may have to lay off workers to stay competitive.

Falling production and stable employment brought a sharp rise in
labour costs last year. Assuming “only moderate” wage growth of 0.7%
this year and 1.1% next year and a marginal contraction in employment,
the European Commission expects real unit labour costs to fall back 2.6%
by 2011, retracing most of increase in 2009.

The recent pick-up in activity has bolstered hiring and brightened
employment prospects for the near term, surveys suggest.

Firms in the service sector reported further employment growth in
May due to expectations of new work over the next 12 months, with the
pace of job creation reaching its highest level since July 2008, Markit
Economics said, citing the results from its latest purchasing managers
index (PMI). The manufacturing sector also saw additional hiring,
extending its run to three months.

Manufacturers and services providers polled by the European
Commission also revised up their employment outlook last month, with
expected hiring trends in both sectors well above the long-term average.

“Leading indicators, historical evidence and latest promising
recruitment plans all suggest that the current positive trend on the
German labour market will continue in the coming months,” ING Wholesale
Banking senior economist Carsten Brzeski said. “It should only be a
matter of a few months before the unemployment rate returns to its
pre-crisis level.”

— Frankfurt newsroom: +49 69 720 142 Email: frankfurt@marketnews.com —

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