FRANKFURT (MNI) – Labour costs in Germany fell back in 3Q after two
consecutive quarters of increase, as both salaries/wages and social
contributions declined, the Federal Labour Office reported on Thursday.

After rising 0.5% and 0.4% in 1Q and 2Q, respectively, labour
costs slipped 0.5% in the three months to September, narrowing the
annual gain to +0.4%.

Gross salaries and wages dipped 0.5% on the quarter, halving the
annual growth rate to +0.2%, while social contributions fell 0.3%,
leaving annual growth stable at +1.0%.

While wages gains at the Eurozone level are widely expected to
remain subdued in the next years, the situation in Germany is different.
Thanks to the spectacular upswing since the recession and the labour
reforms of past years, the economy is now creating new jobs, while many
of its neighbors are still suffering from downsizing.

The tightening labour market and prospects for full employment on
the medium-term horizon have prompted trade unions, with the
encouragement of political leaders, to demand a bigger share of the
fruits of the recovery.

The private sector is now creating jobs at the fastest pace in over
three years, according to the latest PMI polls. Hiring intentions in
industry and retail are at record highs, the European Commission’s
surveys show.

“The strong growth outlook for 2011 and 2012 will translate into
further falls in unemployment,” the Commission said last month,
forecasting a full-point decline in the jobless rate to 6.3% over the
next two years.

Rather than job security, unions are now focusing on pay gains.
This week the chemical union IG BCE urged its regional chapters to seek
a wage hike of at least 6% in next year’s negotiations. The public
sector union Verdi is also eyeing a 6% pay increase for the next year.

Declining birth rates and the ageing population have raised the
spectre of acute labour shortages in key sectors in the years to come.
The German Labour Agency’s IAB research institute sees the labour market
contracting by 90,000 persons this year and 120,000 next year due to
demographic effects.

“Emerging shortages in the labour market are prone to become a
major bottleneck to growth in the medium term,” the Commission warned.

Economics Minister Rainer Bruederle has sounded similar warnings:
“The German economy is facing an enormous lack of skilled labour. This
will lead to significant economic losses if we do not counter this
directly.”

Some employers have told MNI that competition for engineers is
already fierce. A few big firms have decided to bring forward wage hikes
and bonuses for their employees.

After stagnating last year, average employee pay is likely to rise
by 2.0% this year, 2.6% next year and 2.8% in 2012 — well above the
longer-term average, according to the Commission’s projections. But most
of the burden on companies would be offset by higher productivity,
keeping real unit labour costs on a declining trend over the next two
years.

Such a scenario would reinforce the recovery in private consumption
without posing risks to price stability, analysts say.

“It could be that inflation might go up a little bit, but within
fairly narrow limits,” IHS Global Insight economist Timo Klein told MNI.
“I can’t see inflation spiking over 2% in the foreseeable future.”

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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