26 January 2004, 12:30  Ifo's Sinn says east German wages must fall

BERLIN, Jan 26 - The head of the Ifo economics research institute Hans-Werner Sinn told a German newspaper on Monday that wages in eastern Germany would have to fall sharply to meet increased competition from new EU entrants. "The east German states have been artificially lifted to western levels, in terms of wages at any rate," Sinn told the daily Die Welt. "They have to sink and settle over the medium term at somewhere between levels in Poland and west Germany." He said wages in the east would then only be able to rise at the rate of wage increases in neighbouring countries such as Poland, the Czech Republic and Hungary which are among the 10 states joining the European Union in May.
"Wages in east Germany are five times the level in the Czech Republic and Poland," he said, noting that competition from the new EU member states would weigh on the economically struggling eastern region in Germany for 10 to 15 years. Sinn's remarks are the latest in a long series of comments from business leaders and economists concerned that productivity levels in eastern Germany are too low to justify current wage levels, which are close to levels in the west. Under Germany's collective wage bargaining system, pay deals are agreed by unions and employers and few politicians have been willing to risk voter wrath by pressing for cuts in the east. Engineering union IG Metall launched an abortive strike campaign in east Germany last year to bring working hours into line with western standards but the strikes failed to produce a result.//

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