Germany is likely to shift toward wage restraint as inflation concerns mount

Rising inflation has put pressure on social partners across Europe to adjust real wages to meet rising living costs. Yet, concerns have also been raised about the risk of a ‘wage-price spiral’ developing if wages rise excessively. Donato Di Carlo and Martin Höpner assess wage-setting in Germany, finding evidence that the country is likely to shift toward wage restraint in the coming years. If other eurozone countries are unwilling – or unable – to mimic Germany’s wage moderation, distortion of real exchange rates in the eurozone could follow, posing a threat to the single currency.