Bumper German Pay Deals and an Unrubbed Nose in Audi Town.

http://www.bloomberg.com/news/2014-08-03/bumper-german-pay-deals-and-an-unrubbed-nose-in-audi-town.html

On a sunny afternoon in the hometown of German carmakerAudi AG (NSU), a sculpture that allegedly protects against the perils of unemployment isn’t getting much attention.

Instead of lining up to rub the nose of Carl Wilhelm von Heideck, a 19th century military officer and painter, most residents of Ingolstadt are too busy working. The Bavarian city in an area with a jobless rate of 2.3 percent, the lowest in the country, is a symbol of a labor market so tight that wages are headed for the biggest gain in more than two decades.

What’s more, the Bundesbank, long-time guardian of price stability, says that’s fine.

“I’ve already received three unsolicited job offers but I wasn’t interested,” said Julia Eikermann, 23, who studies computer science at the Technische Hochschule Ingolstadt next to the labor agency where the 2.4-meter-high Heideck bust stands. “If you want a job here, you find one. Even if you don’t work in the car industry.”

Bundesbank President Jens Weidmann estimates that wage increases negotiated by German unions are averaging about 3 percent this year. With the central bank forecasting inflation (ECCPEST) of 1.1 percent in 2014, that’s equivalent to a real rise in pay of 1.9 percent. Data compiled by theFederal Statistics Office shows that would be the highest since 1992.

It is “to be welcomed that wages and salaries are rising more strongly than in the days when the German economy was in much poorer shape,” Weidmann said in comments published on the Bundesbank website last week. “We have close to full employment in a number of sectors and regions, and we are seeing more and more reports of labor shortages.”

ECB Meeting

Germany’s challenge contrasts with that of the 18-nation euro area as a whole, which is struggling with near-record unemployment more than a year after emerging from its longest-ever recession. That’s depressing wages, which in turn curbs demand and slows the recovery.

The European Central Bank, which meets in Frankfurt this week to set monetary policy, has cutinterest rates to record lows and announced unprecedented liquidity measures to steer the region away from deflation. Inflation was 0.4 percent in July, the weakest since 2009.

Better-paid workers in the region’s biggest economy could be part of the solution if they use their extra income to buy goods from other euro-area countries. German wages last year were lower on an inflation-adjusted basis than in 2003, when the first of the so-called Hartz labor reforms were implemented, according to the statistics office.

In 2005, when the fourth and final round of measures started, German unemployment rose as high as 12.1 percent. This year it fell to 6.7 percent, the lowest in at least two decades. Using a standardized European Union measure, it was 5.1 percent in June, compared with 11.5 percent in the euro area and 24.5 percent in Spain.

             An employee works on the interior of an Audi A3 at the company's plant in Ingolstadt, Germany.