The deal came after more than 150,000 public sector workers went on strike across Germany. The European Central Bank has been closely watching the negotiations as it considers the future of its massive stimulus program.
German unions and public sector employers agreed in the early hours of Wednesday to raise wages for about 2.3 million workers by 7.5 percent over two and a half years.
The agreement will retroactively increase wages by 3.19 percent beginning March 1. Another increase of 3.09 percent will kick in on April 1, 2019, followed by a final raise of 1.06 percent on March 1, 2020.
Low-paid workers will also receive a one-time payment of €250 ($309), and public sector pay scales will be changed to make them more transparent.
The deal came after three days of talks and a series of countrywide "warning" strikes last week that caused hundreds of flight cancellations and disruptions to public services.
Interior Minister Horst Seehofer, who represented public sector employers in the negotiations, said the agreement would make public service work more attractive, but not cost the government too much.
"I'm satisfied. The public finances will not be overstretched," he said, adding that the wage increases would cost the federal government around €2.2 billion a year.
Municipal authorities, who were also part of the negotiations, would fork out an additional €7.5 billion, according to the Association of Local Government Employers.
The services union Verdi, which had coordinated walkouts of more than 150,000 workers last week with the German Civil Service Federation (dbb), was pleased with the deal. "It is the best result in many years," Verdi chief Frank Bsirske said.
Both unions had gone into the final round of talks demanding that the federal and communal governments agree to increase wages by 6 percent or, at a minimum, by €200 ($250).
The Interior Ministry said it would introduce a law to expand the deal to cover civil servants, judges and soldiers.
The European Central Bank has been closely watching the negotiations. Any broad uptick in German wages could lift inflation in all Euro currency economies, which could weigh on the ECB as it considers whether to wind down a massive stimulus program.
amp/aw (Reuters, dpa, AFP)