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Bundesbank says 2000 wage round encouraging so far

FRANKFURT: German wage deals struck so far this year are encouraging and should help to keep inflation in check, the Bundesbank said on Monday, while reiterating the need for continued restraint in pay demands.

Employers and trade unions must not lose sight of the impact pay pacts have on prices, the central bank said in its 1999 annual report.

Wage negotiators bear a special responsibility to overcome labour market shortages and boost employment, the Bundesbank said.

"Especially in the current situation, (employers and unions) also must not lose track of the effect pay deals have on prices. Given these macro-economic needs, the 2000 wage pacts reached up to now are thoroughly encouraging," it said.

A glance at the German labour market shows that further reforms are still needed, even though the signs of an improvement on the jobs market have increased and unemployment fell slightly during 1999, it said.

"But an unemployment rate around 10 percent is still unsatisfactorily high," the Bundesbank added, pointing out that other countries have cut joblessness more quickly than Germany.

In the report, the Bundesbank was critical of the 1999 wage round and the attempt by trade unions to boost domestic demand through higher purchasing power from hefty pay settlements.

"A look at the development of incomes in 1999 shows, however, that this strategy did not work," the Bundesbank said.

Pay settlements in 1999 rose by three-quarters of a percentage point against 1998.

But negative wage drift, which means that actual pay lagged behind agreed deals, and the cost of higher government outlays meant that pay per worker was no higher in 1999 than in 1998, the central bank said.

Higher pay deals also led to declining employment up until the autumn of 1999, the Bundesbank added.

The unions' purchasing power argument has lost credibility, the bank said.

A more promising strategy would be to improve the chances for the unemployed to enter the jobs market and to strengthen general economic growth, which could also help reduce the high level of withholding in German pay packets, it added.

The German seasonally adjusted unemployment rate stood at 10.0 percent in March, the latest month for which data is available. The rate in west Germany was at 8.2 percent and stood at 17.6 percent in the east, according to the Bundesbank. -Reuters