German public sector workers won their biggest pay rise in 16 years yesterday, averting fresh strikes at airports and hospitals.
Employers and union officials reached a two-year deal which is likely to prompt fresh warnings from the European Central Bank about inflationary risks, but may also help Germany's efforts to boost its domestic consumption.
Employers awarded workers a 3.1 per cent wage rise which will apply retroactively in most of the country from January 1, plus an increase of €50 per month.
Verdi, Germany's biggest service sector union, said the deal equated to a 5.1 per cent rise for 2008 - the biggest pay increase for the public sector since 1992, according to the union-funded Hans Boeckler Foundation.
"This result was only justifiable... to avoid a strike with all its negative economic and social consequences," said Thomas Boehle, head of the VKA local government employers' association.
From 2009, the deal which affects some two million employees in Europe's largest economy, foresees a 2.8 per cent raise, in addition to a one-off payment of €225.
The ECB has closely watched the public sector wage negotiations, as well as pay talks in other sectors, concerned that generous deals could set a precedent in the wider eurozone. Dubbed a "mega wage year" by Germany's biggest industrial union, 2008 has already delivered a 5.2 per cent pay rise for steel workers, their biggest in 16 years.
In return for the improved pay, employers expect state employees in western Germany to work 39 hours a week, half an hour more than previously. Most hospitals would, however, be excluded from the increase in working hours.
In eastern Germany, public sector workers will receive their pay increase this year effective from April 1. Following strikes earlier this year, Verdi chief Frank Bsirske had threatened to stage more walk-outs if employers didn't improve an offer proposed by mediators for a six per cent pay rise over two years, plus one-off payments. Verdi initially demanded an eight per cent rise over one year.
In the past two years, Germany has enjoyed its strongest burst of economic activity since re-unification. Workers have pushed for better pay after years of wage moderation which helped to boost public finances and firms' profitability.
Gustav Adolf Horn, director of the IMK institute, a union-backed think tank, said the accord looked like a fair compromise which could help the domestic economy.