According to the statistics office, Germans’ nominal earnings declined for the first time in over a decade. Data revealed that the COVID-19 pandemic had a more severe impact on earnings than the 2007 – 2008 financial crisis.
Months of lockdown directed at containing the virus’s spread have had a destructive influence on the global economy, and Europe’s biggest economy, with its heavy reliance on exports, has not been spared.
The Federal Statistics agency’s numbers revealed that nominal earnings had dropped by 0.6% in 2020. This was led by massive disruption to working life and resultant lockdowns during the coronavirus pandemic. It’s essential to note that it’s the first contraction since the data series started in 2007. Moreover, in inflation-adjusted real terms, earnings eased by 1%, the first contraction since 2013.
Statistics agency announced that unlike during the financial and economic crises of 2008/09, employees in Germany had to accept a decline in nominal earnings in 2020.
Real wages have only twice dipped over the past 13 years
Meanwhile, prices rose by an average of 0.5% over the year. This is leading the agency to conclude that real wages dropped by 1%.
Real wages have only twice dipped over the past 13 years. Following the financial crisis, there was a slight decline of 0.1% in real earnings in 2009. In 2013, a similar drop of 0.1% was recorded during the Greek debt crisis.
The fall in wages interrupts years of strong wage growth, with six years of consecutive growth of over 1% between 2014 and 2019 while the German economy was growing.
A central cause of the wage reduction was the massive Kurzarbeit (furlough) program that the government introduced throughout the first wave of the epidemic. At the high point in April, some 6 million people were on the Kurzarbeit. This means that they were either not working or had 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 may have had a considerable impact on German households’ overall financial picture.