East Germany

Wages and Prices

Wage policy is an important part of East German social policy. Minimum wages are set by the government and have been allowed to rise gradually over the years. The minimum was raised to 400 GDR marks in 1976; about one-seventh of the work force earned the minimum. The average monthly income of a worker rose from 558 GDR marks in 1960 to 1,140 GDR marks in 1985. Income differentials existed, however, depending on the sector of the economy in which the worker was employed. In the mid- 1980s, the income of workers in retail trade averaged approximately 26 percent lower than the pay of workers in energy, fuel, and metals. Differences in income also reflected levels of training, education, and responsibility; the differences were likely to remain as long as it was necessary to attract workers into priority industries. Material incentives, in the form of cash bonuses and extended holiday time, were used to encourage increased productivity.

Pricing policies are meant to achieve the same effect as wage policies. During the 1970s, the government committed itself to maintaining stable prices on staple goods and providing luxury items to meet consumer demand. As of the early 1980s, food prices had remained frozen for more than a decade, and rents were set at extremely low levels. Since prices have not been allowed to reflect actual economic conditions (in particular the slowdown in economic growth), the government has had to subsidize certain products to keep prices low and stable. In the mid-1980s, subsidies for food, rent, and commuter fares amounted to onethird of total state expenditures. In 1983 the government spent over 12 million GDR marks to support food prices. From 1980 through 1983, rent subsidies averaged 8.3 million GDR marks a year. These subsidies strained the state's budget, which in turn led to a lower rate of increase. For example, between 1979 and 1980 subsidies for commuter fares rose by 7 percent. By contrast the rate of increase from 1982 to 1983 was 3.2 percent.

Because of the price-support policies of the government, the standard of living rose in the early 1980s. Per capita consumption of meats and meat products and fresh vegetables and fruits increased while consumption of potatoes and cereals decreased (see table 3, Appendix A.) Many luxury goods were made available to the consumer, and consumers proved to be anxious to purchase them despite exorbitant costs and lengthy delivery times. A television set, for example, cost about twice the monthly income of a worker, yet the percentage of households owning a television rose from 49 percent in 1965 to 93.4 percent in 1985. In 1965 only one-quarter of households had refrigerators and washing machines; by 1985 there were 91.8 washing machines per 100 households and 99 refrigerators per 100 households. In 1985 a car cost eight or nine times a worker's average monthly income, and delivery took up to six years. Only 8 percent of households owned an automobile in 1965, but almost 46 percent of households had acquired one by 1985.

In comparison with their East European neighbors, East German workers enjoyed a comfortable standard of living in the mid1980s , although it was not as high as that of West German workers. The government, however, was expected to have difficulty maintaining the standard of living. As more goods become available, consumer demands and expectations are likely to multiply. Ultimately the economic situation will affect the pricing and rate of production of consumer goods.

Data as of July 1987