Prices rose in 2022, and wages are expected to follow suit in 2023. HR managers said in a survey that salaries will increase by an average of 5.5 percent. Many companies also want to take advantage of inflation compensation. But there are catches.

The prices for the average life in Germany have risen by more than 10 percent in 2022, but wages have not even come close to as high. The bottom line is that this means a loss of prosperity. German consumers can afford significantly less today than they could a year ago. There are two ways to change that: either prices go down again or incomes have to go up accordingly.

The former is unrealistic, but the latter is likely to happen. In a survey by the Munich Ifo Institute, 81 percent of all HR managers surveyed stated that they would increase wages in their company in 2023. On average, the salary increases should be 5.5 percent. Only 19 percent of HR managers do not expect to increase wages in their companies.

The results are surprisingly different depending on the industry. Only 74 percent of companies in retail want to increase wages, but offer the highest increases at an average of 5.9 percent. In contrast, 86 percent of HR managers in industry stated that they would increase salaries, but only by an average of 5.0 percent – the lowest value. The services sector is roughly at the overall level in both categories.

A second way of compensating employees for the high rate of inflation is the inflation adjustment introduced by the federal government. This is a special payment of up to 3,000 euros that companies can give their employees tax-free. The enthusiasm for this has so far been limited. After all, 42 percent of HR managers stated that they wanted to pay out the bonus, only 14 percent were against it. The majority of 44 percent is still undecided.

However, if the premium is paid out, this does not mean that you as an employee will also receive the full amount. On average, 71 percent, i.e. 2130 euros, would be paid out. Industrial companies and large corporations are more generous. They want to pay out an average of 80 percent, i.e. 2400 euros. In wholesale and retail you have the least chance. Here only a third of the companies want to pay out the bonus and then on average only half, i.e. 1500 euros.

In this case, the industry’s good performance is due to the current wage negotiations with IG Metall. While the union is demanding 8 percent more wages, the employers are only offering the maximum payment of the inflation premium.

No matter how much salary increase and inflation compensation there is in the end, more money is good for every employee in the current situation. “So far, the workers have largely borne the losses alone,” says Alexander Kriwoluzky. He is head of macroeconomics at the German Institute for Economic Research (DIW) in Berlin.

Although this will change with wage increases, it will not be compensated for. The inflation rate should also be higher than 5.5 percent in 2023. In real terms, workers would thus continue to lose prosperity. Economists like Kriwoluzky estimate that it won’t be reversed until 2026.

Even if it were already like this in 2023: The money you lost this year due to high inflation and the corresponding additional expenses is gone. Future wage increases can only improve the future balance sheet. There will be no kind of compensation for the financially tough year 2022, nor will there be overcompensation, i.e. wages that rise far higher than the inflation rate.

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