Scandal-Hit Volkswagen Gives 120,000 Workers A 5 Percent Pay Raise

Volkswagen may be plagued by an emissions cheating scandal, but that hasn’t stopped the German automobile manufacturer from giving its workers a raise.

The company said on Friday that 120,000 of its German workers will get a 5 percent raise in wages over the next year and a half. The pay increase was negotiated by the metalworkers’ union IG Metall, the largest trade union in Germany, and applies to about 20 percent of Volkawagen’s global workforce. The union is a national trendsetter in wage bargaining and is in the midst of negotiating similar pay increases for other automobile workers as well as workers in steel-making and industrial production.

The announcement came from Volkswagen’s head negotiator Martin Rosik and IG Metall’s labor boss Hartmut Meine, who said that workers will receive a 2.8 percent hike on September 1, and another 2 percent on August 1, 2017. Last week, tens of thousands of Volkswagen workers in Germany staged a walk-out on the job at the plants in Wolfsburg, Kassel, Braunschweig, and Salzgitter after the automobile maker failed to reach a wage deal.

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The pay hike comes a week after Volkswagen workers were awarded their annual bonuses of €3,950 ($4,430), which was less than one-third of the normal bonus rate. Last month, the car company posted a 4.1 billion euro ($4.6 billion) record loss for 2015 due to huge expenses on covering the cost of recalls in the wake of the emissions test-rigging scandal. 11 million cars were recalled worldwide.

The deal could help the Eurozone’s 19 countries raise inflation, which is currently near dangerously low levels, according to the Economic Times.

“Price in Germany fell 0.1 percent in April, and inflation in the eurozone is minus 0.2 percent. The European Central Bank, the chief monetary authority for the countries that use the euro as their currency, is pumping newly printed money into the economy through bond purchases in an attempt to raise inflation to a level more in line with a solid economy. The bank’s goal is just under 2 per cent.”

The emissions scandal has not affected workers’ pay, and unions and employees of Volkswagen have repeatedly maintained they should not be forced to pay the price for the company’s mistakes, according to CNN Money.

“Volkswagen shares plunged as much as 40% after the news broke, and the automaker now faces criminal probes by U.S. and European authorities. At least 70 lawsuits have been filed against the company, which has set aside €16.2 billion ($18.2 billion) to cover costs associated with recalls, car repurchases, criminal proceedings and lawsuits.”

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The deflation in the Eurozone makes the pay deal exceptionally good for workers. German wages increased 2.4 percent last year at a time when inflation is minus 0.2 percent. The pay deal did not cover automobile workers for either Audi or Porsche, which have Volkswagen Group as a parent company. The agreement also included concessions on profit-sharing and pensions, according to the Wall Street Journal.

“Volkswagen has recently faced sharp criticism from shareholders for its executive bonus program. Earlier this year, Volkswagen agreed to withhold a portion of executive benefits, to be paid out in 2019 depending on share-price developments.”

Higher wages could lead to higher inflation in Germany, which, as the European Union’s biggest economy, would make a positive contribution to raising inflation levels across the currency union. The wage hike should be considered a positive trend to set for the entire Eurozone; low levels of inflation have made it difficult for troubled EU countries, such as Italy, Spain, and Greece, to reduce their debt burdens. If EU inflation stays near zero, countries like Greece, which have been hard-hit by austerity measures, may be forced to lower wages in order for companies to be more competitive.

So far, it is not clear if the deal will be limited to workers in Germany or if it will be extended to more of Volkswagen’s staff.

[Photo by Alexander Koerner/Getty Images]