Why do wages rise over time?

Kangerlussuaq, for example. Markus Völkl laughs. He's been working in the travel industry for 30 years, but it's still fun. Völkl is currently organizing trips to remote parts of the world for engineers from an industrial group. And comes across airports that even he didn't know - after all these years. Kangerlussuaq, for example, in Greenland. There the engineers repair ship engines. Although he never leaves his desk, Völkl feels "up close" on these trips.

Nevertheless, the 53-year-old from Munich doubts whether he has chosen the right profession. This is due to the salary that they transfer to the account. 2000 euros net - after all these years. In 2017 there was another wage increase in his industry, which changed little. 1.5 percent from April, plus a one-off payment: That sounds like more than what remains after almost two percent inflation.

Isn't that a bit poor in the umpteenth year of the upswing in Germany? There are fewer unemployed people than there have been for 25 years, shouldn't skilled workers be scarce and more expensive? Yes, thinks Markus Völkl. And with him millions of citizens. Unusually, however, it is not only employees who think that way, who always want to earn more. But also central bankers like Mario Draghi, who is also calling for more money for workers.

Did wages rise faster earlier? And how would the country get there again? In search of answers, one wanders through post-war history, from the economic miracle to the present day. And learn how the country and the world have changed.

Less innovation, less productivity

In the first decades after the war, salaries skyrocketed (see grafic). The middle class expanded and gained wealth. This was made possible by high growth, pent-up demand in the consumption of cars and refrigerators - and productivity leaps of five percent per year, for example due to the spread of mass production. Productivity is central to understanding wage developments. If the workers in the factory produce 10,500 refrigerators instead of 10,000, these five percent more productivity can increase wages by five percent without additional costs for the company.

But after the stormy early decades, the miracle evaporated. The economy grew more slowly, and soon every household had at least one refrigerator. Because fewer innovations followed, productivity declined rapidly. Today it is usually only increasing by one percent per year, despite digitization. This permanently limits wage increases. After all, productivity is the most important factor in tariff negotiations alongside inflation. If wages are to rise faster than productivity and prices, this will increase costs or reduce the profits of the owners - and they will fight back.