January 9, 2018 / 2:39 PM / a year ago

Breakingviews - German workers may frustrate ECB’s inflation hopes

A worker wears a "we are on strike" vest during a protest of John Deere Europe employees and members of German industrial metal workers union IG Metall (IGM) at the John Deere factory in Mannheim, Germany, January 9, 2018. REUTERS/Ralph Orlowski

LONDON (Reuters Breakingviews) - Germany’s biggest trade union and European Central Bank President Mario Draghi share a common cause. The former wants a big pay rise for industrial workers in Europe’s largest economy. The latter wants euro zone wage growth to pick up so that he can stop worrying about inflation being too low. Teutonic workers have a strong hand but may still disappoint Draghi.

IG Metall is asking for a 6 percent pay rise that will affect nearly 4 million German industrial workers, some of whom went on strike on Monday and Tuesday. The union typically secures about half of what it asks for, according to JPMorgan analysis, but might have expected to do better this year, given a booming economy. The national unemployment rate is 3.6 percent, the lowest on record. More than a fifth of manufacturing firms say output is being hampered by labour shortages, according to the Bundesbank’s December monthly report.

But higher pay is not the only thing IG Metall wants. The union is demanding more working time flexibility and wants employees to be able to cut their hours by a fifth, to 28, for two years while retaining a right to return to full-time work. It also wants shift workers or those caring for older people or children to receive some compensation if they choose reduced hours. Employers have so far rejected these demands. They may only countenance any flexibility if the union cedes more ground on wages. That’s unhelpful for the ECB, which has been buying bonds and slashed its deposit rate below zero to get inflation back to its near-2 percent goal, from 1.4 percent in December.

German workers may not be much more helpful in future. They already work the least number of hours a year of any in Organisation for Economic Co-operation and Development countries, and 12 percent fewer hours than they did in 1991, the year after reunification. Further reductions in working time, a shortage of skilled labour and even modest rises in wages may force German industrial companies to move more jobs overseas. That would erode workers’ bargaining power – and their ability to help the ECB to generate inflation.


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