German public pay rise a lesson in boosting consumer demand

The German government has agreed to a 3pc wage increase for some 2.1 million public sector workers this year and a 2.4pc pay rise next year, Verdi union leader Frank Bsirske said this week.

The agreement – one of the biggest pay hikes for public sector workers in years – takes effect retrospectively from March 1 and also includes a pay raise of at least €90 per month this year for public sector workers at the lower end of the wage scale.

Labour unions in Germany have been getting above-average pay hikes in the last year after a decade of wage restraint and deals that failed to even keep pace with the country’s inflation rate, currently 1pc.

The moderate deals had improved the country’s competitiveness and helped reduce unemployment. But they also put a strain on the eurozone and pressure on Germany to encourage higher deals to boost consumption.

“The result is among the best we’ve seen so far in 2014,” said Verdi leader Mr Bsirske.

Pressure is mounting on governments across Europe to raise public sector pay, after years of stagnation and even cuts. This stems from more than simple concern for public service workers; boosting domestic demand through pay rises is widely seen as one of the most effective ways to help tackle current account imbalances among eurozone countries.

Even modest rises are no longer acceptable in some parts of Europe; in Britain, trade unions are railing against a new pay deal, which proposes raises of around 1pc for most civil service employees. The UK’s private sector, in comparison, is showing strong signs that pay growth will pick up this year, boosted by its government’s recent approval of a 3pc rise in the minimum wage.

“We need to continue with public sector pay restraint in order to put the nation’s finances back on a sustainable footing,” said Britain’s deputy finance minister Danny Alexander in a statement.

Teachers’ pay often emerges as one of the most controversial issues in any public sector pay debate. According to research by economic thinktank the OECD, detailed above, Irish teachers are some of the best paid in the world, coming in sixth.

But teachers’ salaries are difficult to compare; working hours and class sizes vary wildly from country to country. And Irish teachers have been cut by around 14pc since 2009.

Gardai, teachers and public servants are among the biggest group of debtors enquiring about bankruptcy, despite the adverse impact on their careers of going bust, debt advice organisations have reported.