Conclusion
Wage growth in west Germany has, over the longer term and with few exceptions, been far more closely oriented towards macroeconomic productivity growth than in the majority of its competitor countries. Even after adjusting for exchange rate movements, it is evident that unit labour costs in west Germany have, in general, growth significantly less strongly and in most cases are lower in absolute terms than abroad. The fact that, in spite of this, Germany has repeatedly faced foreign trade problems, is due to the volatility of exchanges rates. The demand—in such cases seemingly self-evident, although usually not explicitly formulated—that collective wage bargainers ought to orient wage growth not only towards productivity growth but also towards exchange rates would mean standing the economy on its head, however. A rational alternative to this is to stabilise exchange rates or indeed their partial abolition, as is the aim of European Monetary Union. It would be irrational, on the other hand, to abolish the wage determination system which, on the whole, has proved its effectiveness in orienting average wage increases towards macroeconomic productivity growth.
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It must be assumed that by “firms” manufacturing industry is meant; this is suggested at least by a study by the Institut der deutschen Wirthschaft, a research institute close to the employers' federations.
Labour costs are composed of gross wages and salaries plus employer social insurance contributions. These social insurance contributions are normally termed “indirect wage costs”. Yet this term does not alter the fact that these “indirect” costs are nonetheless genuine labour costs, no less than wages themselves.
One aspect not discussed here is the role of interest as a yardstick for the profitability of real capital investment and its significance in determining the ratio in which the factors of production-labour and capital —are deployed.
Clearly, in spite of deregulation the global financial markets are not a perfect market. Barriers to mobility remain, such as institutional barriers and the lack of information; these provide a basis for certain differentials between national interest rate levels. To the extent that these factors vary between countries, they constitute competitive advantages and disadvantages, and are thus competitive factors.
18 other industrialised countries. Internationally comparable figures are not available for labour costs and productivity per working hour.
Here and in the following the differential is calculated by dividing the foreign and domestic indices. The base value is set at 100.
This does not mean that in absolute terms the D-Mark is undervalued by 10%, because in the base year (1973) the D-Mark was probably overvalued so that a revision of the original data series “unit labour cost differential industrialised countries minus Germany” would be necessary to identify the level of the real external value of the D-Mark (cf. figure 3). This estimation is based on purchasing power parity theory which is considered to hold, if not in the short run, then at least over the medium and long term. Thus the DIW assumed that on the average for the entire period 1973 to 1986—across two business and interest rate cycles— the nominal external value of the D-Mark was equal to consumer purchasing power parity. The difference between the two averages amounts to 12 1/2% (cf. “The Widening of EMS Bands: A Necessary but Temporary Measure”, in: Economic Bulletin, vol. 30, no. 11, November 1993). Yet it would seem appropriate to adjust the differential of 12 1/2% to allow for the “structural” (i.e. largely due to statistical and institutional factors) difference between the wage share in Germany and the average share abroad. Making a broadly estimated deduction for this of 3%, the index series “unit labour cost differential industrialised countries minus Germany” needs to be adjusted downwards by 9 1/2%.
This is not true of east Germany, where collective bargaining has been oriented, albeit less strongly in recent years, towards an adjustment of nominal wages to west German levels above and beyond the rate of productivity growth in eastern Germany.
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Pohl, R. Wages, exchange rates and competitiveness. Economic Bulletin 34, 27–32 (1997). https://doi.org/10.1007/s10160-997-0029-6
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DOI: https://doi.org/10.1007/s10160-997-0029-6