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Employees in Germany see biggest drop in wages in more than a decade

The average German worker experienced a one percent drop in real earnings in the pandemic year of 2020, the most significant drop since records began in 2007.

Employees in Germany see biggest drop in wages in more than a decade
Photo: DPA

Numbers published by the Federal Statistics agency showed that huge disruption to working life caused by the pandemic and the resultant lockdowns led to a drop in pre-tax earnings (nominal earnings) of 0.6 percent last year.

“Unlike during the financial and economic crises of 2008/2009, workers in Germany had to accept a drop in nominal earnings in 2020,” the statistics agency commented.

At the same time prices went up by an average of 0.5 percent over the year, leading the agency to conclude that real wages sunk by one percent.

Real wages have only twice dropped over the past 13 years. Following the financial crisis there was a slight decrease of 0.1 percent in real earnings in 2009; and in 2013 a similar decrease of 0.1 percent was recorded in the midst of the Greek debt crisis.

The drop in wages interrupts years of strong wage growth, with six years of consecutive growth of over one percent between 2014 and 2019 while the German economy as a whole was booming.

A central cause of the wage reduction was the massive Kurzarbeit (furlough) programme that the government introduced during the first wave of the pandemic. At the high point in April some 6 million people were on the Kurzarbeit, meaning that they were either not working or were placed on reduced hours.

The state paid a percentage of people’s wages while they were on Kurzarbeit. This money was not included in the statistics agency’s calculations, but is likely to have had a considerable impact on the overall financial picture in German households.

READ ALSO: What you need to know about Germany’s ‘Kurzarbeit’ job support scheme

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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