High inflation significantly reduces the purchasing power of your salary. An evaluation of the data from the Federal Statistical Office shows how clearly. According to this, your income has practically not increased in the past 30 years.
You start a job with a salary that allows you to lead a certain lifestyle. 30 years later, despite several salary increases, you still can’t afford any more than you did at the beginning. This is the reality for the average German. In practice, the purchasing power of wages had already fallen in recent years, but the current high level of inflation is really sending it plummeting.
This is measured by the so-called real wage. This is determined as an index. For this, the Federal Statistical Office takes a base year (until recently this was the year 2015) and uses the average wages and prices applicable at the time as a starting point. For each additional year, a comparison is now made of how much higher or lower wages and prices were. The real wage is calculated from the difference between the two factors.
Example: In 2015 you had an annual income of 40,000 euros and spent 35,000 euros on your lifestyle. In the end, 5000 euros remained. A year later you get a small salary increase of 1.0 percent and now earn 40,400 euros. If the inflation rate is less than 1.0 percent, you can afford your current lifestyle and end up with even more money left over – your real wages will then increase. But if inflation is two percent, for example, your expenses will increase to 35,700 euros. In the end, despite the salary increase, only 4700 euros remain. In technical terms, your nominal wage would then have risen, but the real wage would have fallen.
The same calculation can also be made for all wages and prices in Germany. The statistics go back to 1991. At that time, the real wage was 93 percent of the value from the base year 2015. A year later, in 1992, it had already risen to 98 percent. During the 2007/2008 financial crisis, it almost fell back to the 1991 value, after which it rose sharply, especially from 2014 onwards. In the year before the pandemic, the index was at 105.5 percent of base year, or 13.5 percent higher than in 1991. This was largely due to the period of near-zero inflation as wages continued to rise in Germany.
But that changed with the pandemic. Although the inflation rate was still low in 2020, in some cases even negative, wages fell significantly due to lockdowns, closures and short-time work. The real wage index fell by 1.4 percent in the first year of the pandemic, and then by a further 0.1 percent last year. Since autumn, high inflation has been added to lower wages. For the first quarter of 2022, the Federal Statistical Office reported a value of 97.8 percent compared to the base year 2015. This means that real wages have fallen by 2.2 percent since then. They are now even 0.2 percent below the 1992 level.
Nominal wages rose sharply between January and March. On average, it went up by four percent compared to the previous year. But prices rose even more, at 5.8 percent. So the bottom line is a big minus.
However, the statistics must be viewed with limitations. Most importantly, the Federal Statistical Office changed its weighting scheme in 2022, which is used to determine average wages. The calculations have been adjusted based on new studies on how many people work for which wages in which jobs. This means that old data is less comparable because it was calculated differently. However, the deviations are in the range of a maximum of 0.2 percent.
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The second important objection: For the calculation of real wages, only negotiated wages are used. Anyone who is paid outside the collective bargaining agreement is therefore irrelevant to the statistics. However, negotiated wages in almost all sectors tend to be higher than non-tariff wages. It is therefore reasonable to assume that the actual wage level is even lower than already reported.
And last but not least, these are just average values. Individual groups may therefore have received significantly higher or lower wage increases in recent years. The inflation rate is also slightly higher for people from low income brackets because they spend more money on things like housing, heating, petrol and food than people from higher income brackets. Since these four things have recently risen the most in price, this also has a greater impact.
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