Reprinted from The Wall Street Journal by Chelsey Dulaney on January 12, 2017.
The outcome of negotiations between Germany’s largest labor union and some of the country’s top manufacturers could offer clues about where inflation is headed around the globe.
Germany has one of the tightest labor markets in the developed world, with a record-low unemployment rate and a booming industrial sector. Amid the country’s economic strength, IG Metall, a union that represents about 3.9 million German workers, is demanding a 6% pay increase this year as well as a shorter work week. That would be the largest wage increase for its members since 1991.
Union workers at companies including Audi and BMW staged strikes this week, threatening to add pressure on an economy already struggling with a widespread skilled labor shortage.
The outcome of IG Metall’s negotiations could send a message about how companies around the world are responding to increasingly tight labor markets. So far, employers from the US to Japanhave been hesitant to lift worker pay even as unemployment rates have tumbled and job openings have soared. This has confounded investors and policymakers who had expected a growing shortage of workers to push up wages. In theory, wage growth should filter through to broader measures of inflation by giving companies more leeway to raise prices. …