How did our salary lose value in 2022?

Despite wage increases, most people in Germany were able to make less than their wages in 2022 compared to the previous year. While wages have increased by an average of 3.4 percent on paper, nominal wages have increased more than ever since the time series began in 2008. However, 7.9 percent inflation consumes more than growth. Real wages, that is, salaries measured by purchasing power, fell by 4.1 percent, according to the Federal Statistical Office.

Experts speak of a historic real wage loss. After wages nearly always rose faster than inflation in the 2010s, Corona and the associated short-time work had already caused purchasing power to plummet. But the decline really became drastic in 2022 when Russia’s attack on Ukraine resulted in energy prices rising sharply and resulting in high inflation.

How much the salary depreciates depends on the industry. The good news is that low-income people were more likely to keep up with inflation. That’s because the minimum wage has risen by an average of 10.2 percent annually – with an inflation rate of more than 7.9 percent. The bad news: Low-income people are more affected by inflation because they have to spend most of their income on products that have become particularly expensive, such as energy and food.

A good half of the employees work in companies with collective agreements. Accommodation is one of the few industries where standard wages are rising faster than inflation. This is demonstrated by an evaluation of the WSI tariff archive, which is only available to ZDF today. Head of the WSI collective bargaining archive at the union-affiliated Hans Böckler Foundation, Prof. “Collective agreements had to be adjusted here because of the minimum wage increase,” explains Thorsten Schulten. “The labor shortage has increased the pressure.”

So why are wage increases in many sectors far below the 7.9 percent inflation rate? According to Schulten, there are two reasons for this:

• “For the majority of workers, there were no negotiations in 2022. And the 2021 collective agreements were agreed against the background of completely different inflation rates.” So there was only a 1.3 percent plus – a real minus of 6.1 percent, in the civil service of federal and local governments. There is now collective bargaining and the unions are demanding 10.5 percent more.
• “Many wage increases negotiated in 2022 will only come into effect this year – in the big metals and electrical industries, for example,” Schulten says. Overall, wage settlements in 2022 appear to be higher than in previous years, but well behind the inflation rate.

In addition to wage increases, there is another way to soften rising prices: the inflation compensation premium. Between October 2022 and the end of 2024, employers can make additional payments to their employees up to a total of 3,000 Euros without having to pay taxes and social security contributions.

“At first glance, this bonus is very attractive to both employers and employees,” says Schulten. It is used by many industries. However, it should not replace a permanent wage increase. “Because prices aren’t falling, they’re just rising more slowly.”

According to Schulten, this depends on two factors: How high is inflation? So what are the unions doing?

Inflation has fallen recently and will be lower this year than it was in 2022, according to expert forecasts. The Macroeconomics and Business Cycle Research Institute, affiliated with the Hans Böckler Foundation, assumes 5.1 percent, and the federal government assumes 6 percent – but uncertainty is still large. It can be more or less depending on international developments.

Collective bargaining is currently taking place at the post office and unions are charging 15 percent more. “If they do well, it will have an impact on the civil service. And the outcome will set the standard for more collective bargaining this year,” says Schulten. On average, it expects wage growth of 3.5 to 4 percent for 2023. “It is not yet clear whether this will be enough to turn real wages back to black.”