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Inflation: Profits drive prices more than wages and salaries

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Inflation: Profits drive prices more than wages and salaries

During inflation, profits have risen faster than wages in almost all industrialized countries. Picture Alliance

Since the beginning of the wave of inflation, profits have risen faster than wages in almost all industrialized countries.

This was determined by the industrialized countries organization OECD. In Germany, the effect was even more pronounced.

The OECD is optimistic about the labor market. It remains stable despite the low growth. In a comparison of unemployment rates, Germany does very well internationally.

In the recent inflation, profits have risen faster than wages in most developed countries. That made one Evaluation of the industrialized countries organization OECD in their new outlook for the labor market.

The numbers are explosive because of the dispute as to whether excessive price increases by many companies have also fueled inflation. ECB President Christine Lagarde made the same accusation. The data is also important for the question of how the burden of inflation has been distributed so far.

The OECD examines nominal increases in both income and profits. In almost all sectors and OECD countries, nominal incomes have risen sharply, albeit less than prices. Purchasing power therefore fell in real terms. This is partly reflected in the profits. However, the losses incurred by companies as a result of inflation were then lower than those of employees.

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“Corporate profits have risen faster than labor costs in many countries and sectors, suggesting that the cost of living crisis has not been shared equally,” writes the OECD.

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The diagram makes this clear. The purple dots show the change in profits between the end of 2019 and the first quarter of 2023. The green dots mark the increase in labor costs, i.e. essentially wages and salaries.

Inflation: Profits rise faster than wages


OECD countries are ranked by profit growth. Germany is just above the OECD average. The gap between wage and profit increases in Germany is very large.

Portugal stands out as an exception, where wages rose significantly more than profits. This was also the case in France and the USA. You can find more details about the investigation here directly at the OECD.


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OECD optimistic about the German labor market

The OECD is optimistic about the labor market – especially for Germany. Despite a stagnating economy, she expects a further decline in unemployment in Germany in the coming year. Germany already has one of the lowest unemployment rates among OECD countries. The German economy is expected to stagnate in 2023. In the OECD area, on the other hand, growth of 1.4 percent is expected.

For 2024, the OECD outlook is also somewhat more positive for Germany: Growth of 1.3 percent is expected, accompanied by a further decline in unemployment.

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In the OECD countries, employment as a whole has recovered from the corona pandemic. Unemployment has fallen to its lowest level since the early 1970s.

According to the OECD, real wages in Germany fell by 3.3 percent. In the case of low earners, this real wage loss was cushioned by increasing the minimum wage to twelve euros per hour. The OECD sees few signs of a price-wage spiral. She also advises higher minimum wages and wages to cushion the loss of purchasing power. In Germany, the statutory minimum wage will rise again at the turn of the year to EUR 12.41.

Due to the increased profits, there is scope for further wage increases in many countries without new inflationary pressures arising.

In its employment outlook, the OECD also looked at artificial intelligence, which is expected to have a significant impact on the labor market. Accordingly, low and medium-skilled jobs have the highest risk of being automated. In highly qualified occupations, on the other hand, AI seems to complement the skills in these occupations. The OECD advises that low-skilled and older workers in particular, but also those with higher qualifications, should undergo further training. Governments should therefore create incentives for employers to offer on-the-job training.

With material from dpa.

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