VOW Volkswagen AG

   By Harriet Torry 
 

Pay for public-sector employees in Germany's federal states will increase more than 4% over the coming year, after employers and labor unions reached a wage agreement late Saturday.

The deal means wages for public-sector workers will increase 2.1% retroactively from March 1, and 2.3% from March 1 next year, services union Ver.di said. The agreement came in the fourth round of negotiations.

The rise is the latest in a string of wage increases that are expected to further drive consumer spending and boost the German economy this year.

Earlier in the year, labor union IG Metall reached a compromise with employers for a 3.4% pay increase for 800,000 metal and electrical workers in the state of Baden-Wuerttemberg. Volkswagen AG (VOW.XE) and IG Metall also agreed to raise employees' basic monthly pay by 3.4% as of June 1.

Write to Harriet Torry at harriet.torry@wsj.com

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