Low pay deal boosts German inflation hopes

THE DOWNWARD push on German inflation was given another powerful boost yesterday as public sector workers accepted a tiny nominal pay increase for 1994.

Coming close on the heels of the well-below-inflation accord in the key engineering sector, yesterday's deal with Germany's second-largest union, the OTV, in effect closes this year's pay round on a moderate note.

The public sector union, representing 3.5 million workers, accepted a 2 per cent pay offer, to run for 15 months. For lower-paid employees, who make up more than two-thirds of public sector employees, the increase will begin on 1 July. For the better-off it will only take effect from 1 September. This implies in effect a pay increase for 1994 of between 0.7 and 1 per cent, well below the expected 3 per cent inflation rate for the year.

Engineering workers who are members of the IG Metall union in the state of Lower Saxony yesterday voted by a 64 per cent majority formally to approve the deal agreed with employers last weekend. This gives the 3.6 million western German engineering sector workers in effect a pay increase of 1.2 per cent in 1994.

Together with cuts in benefits and innovative provisions for flexible working-time arrangements, it provides substantial relief for firms struggling to improve competitiveness eroded by many years of strongly rising labour costs.

While record unemployment was the main factor pushing Germany's powerful industrial union to accept a big cut in real wages, the public sector workers, most of whom enjoy job security, were pressured by the need of local, state and national government to control ballooning public spending.

It was agreed yesterday to freeze the Christmas bonus of public sector workers for three years. Sickness benefits will also be reduced for newly employed workers. For the 1.2 million public sector employees in eastern Germany, it was agreed to continue slowly raising wages to basic western levels.

Eastern German public sector workers now earn 80 per cent of the western wage. This will rise to 82 per cent in the autumn of 1994, then 84 per cent a year later.