Rising Costs Strike at German Competitiveness

At WSJ, "Companies grapple with labor expenditures that threaten growth, investment in Europe’s largest economy":

FRANKFURT—Spiraling German labor costs are starting to undermine the country’s famed competitiveness, threatening to hurt economic growth and investment in Europe’s largest economy.

Propelled by a healthy economy and record-low unemployment, labor costs here are rising fast, as the government has further tightened its grip on the labor market, driving up companies’ wage bills.

Official German data published this month showed that real wages in the first quarter rose at their fastest rate since late 1992, when wages in East Germany shot up following the country’s unification, and much faster than the eurozone as a whole.

German businesses say they are feeling the pinch, but in Berlin, politicians have ignored a trend economists and managers warn that, if left unchecked, will hit growth and employment levels.

“Rising labor costs is the most critical issue,” said Martin Kapp, the chief executive at machine-tool maker KAPP Werkzeugmaschinen GmbH, who said he expects increases in personnel expenses, which include wages as well as contributions to social insurance, retirement and health care, among other costs, to rise about 30% over the next 10 years...

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