According to a Confucian proverb, those who do not make too much effort make good money. It cannot be said whether this is actually the case clear respond. A current Kienbaum study, however, has brought something else to light.

Wage development_Germany

What does 3 percent more pay?

A survey by Kienbaum among companies in over 26 countries is noisy FAZ.net showed that the Germans can expect relatively high wage increases in the coming years. Accordingly, they should Income in Germany will increase by an average of 2,9%.

But does this increase ultimately mean a gain in purchasing power or will a large part be achieved Taxes and inflation consumed? This is exactly the question that follows Article a little more specific.

The Kienbaum forecast - an overview

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For the Kienbaum forecast, more than 1.000 Companys questioned. The result is initially more than encouraging for German employees: an increase of 2,9% in gross wages beckons. The reasons are mainly in the following facts:

  1. In Germany, a stable business development can be observed
  2. The economic outlook is cautiously optimistic

With this increase in gross national income, Germany is, according to the survey, the European top group. Only in Norway is the increase with 3,2% in the year 2016 even stronger. At first glance, a very generous wage increase, which could stimulate demand and thus possibly the economy as well.

Bruttolohn rise and inflation rate - what remains in the end?

An wage increase the bottom line is that it is only really helpful if you can buy more of the growth. However, since the Costs are also dynamic in the form of prices, the mere increase in wages does not say all that much.

For a more precise picture, therefore, the consideration of the inflation rate is incessant. According to the above-cited Kienbaum study, this should amount to 2016% in the year 1,6, which would result in an average increase in real wages of 1,3%. According to experts from the comparison portal Tarifcheck24.com such a rate is no longer so special:

Figure 1: Nominal increase in salary and reallocation in comparison, source: Federal Statistical Office.

Lastly, therefore, there were even significantly higher rebate increases than the expected 1,3% next year. This was the increase in the 2. Quarter 2015 for example with 2,7%. However, the main reason for this is the very low inflation rate:

Consumer price index_2015

Figure 2: Consumer price index 2015, respective change to the same period of the previous year, source: Destatis.de

Not everyone profits from low prices

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Even though the rate of inflation is ultimately an average for many different goods and services, not everyone benefits from a low price increase.

A small example should clarify this:
According to an analysis on ADAC.de the price for the gasoline Super E10 2015 was at a much lower level than 2014:

For example, this price reduction has contributed significantly to the low rate of inflation. Nevertheless, motorists of course benefit significantly more from the price reduction than people who are mainly on the road. These can only indirectly benefit because, for example, products are cheaper due to lower transport costs.

Thus, an increase in real wages can be taken as an average figure for a Society calculate, but the Effect to an individual can sometimes differ significantly.

Is the actual Reallohn rise actually available?

In addition to the inflation rate, there is another factor that limits our purchasing power. This is income tax. Since these both from the lower and from the higher salary is subtracted, it is tempting at first glance to neglect them when considering them. Unfortunately, the taxes increase disproportionately with increasing income, which is commonly referred to as progression. Two different characteristics can be distinguished:

1. The progressive tax rate (normal progression)

If the tax rate were the same for all taxpayers, someone with an annual income of €40.000 would have to pay exactly twice as much income tax as a taxpayer with an annual income of €20.000. The following on account shows this in more detail:

Table 1: Sample calculation for the same tax rate for all taxpayers without deduction

In Germany, however, a progressive income tax rate is applied. As a result, taxpayers do not pay the additional amount due to their higher income at the same tax rate, but also a higher proportion. The following statistics shows the tax liability and the average tax rate related to different income situations between 20.000 and 40.000 Euro:

Progressive income tax rate

Figure 3: Progressive income tax rates in Germany, source: Einkommensteuertabelle.de

If we compare the tax liability for an income of 20.000 euros and 40.000 euros, it will be very fast clear that the difference is much higher:

Table 2: Income tax liability for different annual income (the taxable income is decisive)

The tax liability amounts the tax liability for a taxable annual income of 20.000 Euro currently just at 2.634 Euro. However, anyone who earns 40.000 Euro in the year has a tax liability of 8.760 Euro. This figure is more than three times higher, although income has only doubled.

2. The “cold progression”

The so-called “cold progression” is a phenomenon of the progressive tax rate. In certain income areas it can happen that an increasing nominal wage leads to a real wage loss despite the same high inflation rate. For example, if annual income rises from 20.000 euros to 20.400 euros and the inflation rate is also 2%, real income is reduced by 108 euros due to the higher income tax.

For this reason, it is constantly being asked to compensate for an inflation adjustment on the tax rate and the tariff lines. Thus the cold progression could be confined. These examples show very clearly that rising nominals often almost always entail higher tax burdens. Thus, a part of the wage increase is additionally consumed. This effect is, of course, very positive for the state, as it benefits from higher tax revenues.

tax-salary files

Conclusion

The predicted increase in wages by almost 3% next year sounds very spectacular at first glance and also shows that the economic engine is still buzzing. But how much of this is ultimately available to additional purchasing power depends on many different factors. On the one hand, the level of the inflation rate plays an important role.

The more prices rise, the fewer goods and services wage earners can buy with their higher wages. In addition, it should not be forgotten that every wage increase also consumes a proportion that should not be underestimated for additional income tax payments. The bottom line is that wages and salaries are unlikely to develop much more positively than in 2015, because this year they will benefit People from an extraordinarily low rate of inflation.


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