The Financial Times reports that after five years of severe wage restraint, leading politicians in Germany and even some employers are backing union claims for a bigger share of rising profits in Europe’s largest economy.

IG Metall, the engineering sector trades union, intends to call for a wage increase of between 5 and 8 per cent. Negotiations on the 2007 wage round in the sector, beginning in February, have traditionally had bellwether status for the rest of the economy.

Franz Müntefering, the Social Democratic vice-chancellor in Angela Merkel’s government, and Kurt Beck, the SPD chairman, have called on companies to share rising profits with workers.

“The recovery is here,” Mr Müntefering told the Bild tabloid daily on Monday. “We must now have the courage to drive the [wage] spiral upwards.” On Sunday, Mr Beck said it was “time for wage policies that give workers adequate pay rises.”

Generous wage deals next year could alarm the European Central Bank, which will worry about their inflationary impact. It is likely to warn against excessive rises after its meeting on Thursday, when it is expected to announced another quarter percentage point rise in its main interest rate to 3.5 per cent.

Last month, Jean-Claude Trichet, ECB president, warned that "stronger than currently expected wage developments pose substantial upward risks to price stability". Mr Trichet has been impressed by corporate Germany's efforts to restore cost competitiveness but argues high unemployment necessitates continuing wage restraint.

Ms Merkel’s Christian Democratic Union has stopped short of encouraging higher wages but the chancellor said last week that pay should better reflect companies’ performances. She plans to create tax incentives for profit-sharing schemes.

Speaking at the margins of a meeting with Berlin business people, Peer Steinbrück, the finance minister, told the FT that wage deals were a matter for trades unions and business federations. “But it is true that many wages have fallen in real terms over the past few years,” he added. “Many people have less money in their pocket today than they did four or five years ago, and that explains the poor consumption figures.”

The show of support from key members of the grand coalition will buttress the position of trades unions, which want to achieve higher pay deals next year. This marks a change of strategy for the labour movement, which in the past has accepted modest pay rounds in exchange for job guarantees.

Martin Kannegiesser, head of the Gesamtmetall federation of engineering companies, which are recording record profits at present, reached out to the unions at the weekend, saying employers would next year seek to “associate workers better to our growth and success.”

Economists are split on the issue of pay. Though many warn about deals that would undermine the productivity gains made by Germany since 2000, several experts think higher wages would give a welcome boost to Germany’s anaemic private consumption.

In real terms, the average household’s income is lower today than it was 15 years ago. In the past three years in particular, there has been a marked decoupling between fast-rising corporate profits and falling wage income.

At 7.3 per cent last month, Germany’s jobless rate, according to internationally comparable figures provided by the International Labour Organisation, is now substantially lower than France’s. But although unemployment has fallen steadily this year consumption has failed to rebound. Retail sales dropped by 0.2 per cent in October, following a 2.9 fall the previous month.

The FT also reports that US regulators moved on Monday to crack down on brokers who lavish gifts on mutual fund traders as they slapped $9.7m in penalties on Jefferies & Co, the New York securities firm, for currying favour with Fidelity traders.

The Securities and Exchange Commission and the industry regulator NASD said Jefferies, a middle-sized investment bank, hired Kevin Quinn as an executive vice-president in 2002 and gave him a $1.5m annual travel and entertainment budget to boost their institutional business.

He used the money to court five Fidelity traders, paying for private flights to Turks and Caicos, Bermuda and Puerto Rico, as well as vintage wines, golf outings, and trips to Wimbledon and the US Open tennis tournament.

He also paid $75,000 towards a lavish Miami bachelor party for a Fidelity trader. “Investors deserve and the integrity of the market requires that traders select brokers based on the quality of their trade execution and not the lavishness of their gifts,” said Walter Ricciardi, the SEC’s deputy enforcement director.

The regulators said the case was part of a broader effort to tighten policies that have let brokers funnel thousands of dollars in gifts and entertainment to institutional traders.

The NASD, which unearthed the problem, also issued a report urging firms to track entertainment and gifts more closely.

“We looked at 40 different firms that did institutional business and there was an industry- wide failure to track entertainment and gifts,” said James Schorris, head of enforcement at the NASD.

The firms routinely violated the NASD’s gift policy at the time, which limited gifts to $100. “We didn’t see any other firm that sank to the level of Jefferies but there is a lot of room for improvement,” Mr Schorris said.

Mr Quinn, who lost his job in October 2004 after his spending habits came to light, has been ordered to pay $468,000 in SEC penalties and barred from the securities industry for life, his lawyer said.

His supervisor Scott Jones was fined $50,000 and suspended from serving as a supervisor for three months. Since the scandal broke, Jefferies has instituted a “no gifts” policy for its employees.

“Jefferies has revamped its procedures and it is going to make sure nothing like this ever happens again,” said the firm’s outside counsel Bruce Baird.

“Jeffries chose to settle, rather than to litigate,” said Anne Crowley, a Fidelity spokeswoman. “This settlement is one where we played no role and had no say, this is not a settlement with Fidelity.”

She said that Fidelity had conducted its own investigation and taken strong disciplinary action against those employees found to have violated company policies.

The New York Times reports that twenty years ago, Livonia, Mich., was a prosperous Detroit suburb, with upscale neighborhoods and high-end stores in a new mall selling Hermès and Chanel, which some locals wore on special occasions to dine at the romantic Fonte D’Amore restaurant.

The local economy was thriving because of the Big Three automakers, which operated humming factories near Livonia and employed thousands of managers who commuted about 20 miles to the auto companies’ headquarters downtown.

Three hundred miles to the south, drivers back then on Interstate 75 could zip right by Georgetown, Ky., and barely notice it, with its tiny downtown, small college, quaint Victorian homes, and a spring that locals claimed was “the birthplace of bourbon.” The local hangout, Fava’s, was about the only place for a decent meal.

Now, two decades later, the two cities have seemingly switched places economically.

Livonia is stumbling, as Detroit’s automakers close factories and eliminate blue- and white-collar jobs. Just last week, Ford Motor announced that 30,000 workers had opted for deals worth up to $140,00 to leave. In all, with similar offers at General Motors, about 70,000 auto workers, or one-third of those in American plants, have decided this year to leave.

Georgetown, however, is booming because of Toyota, which has invested more than $5 billion in a sprawling manufacturing complex, leading to the construction of new schools, hotels and dozens of smaller factories run by suppliers to Toyota.

Their changing fortunes offer more than a tale of two auto cities. They provide a close-up look at the impact of a broader economic shift of the nation’s auto industry from north to south, as Detroit falters and their surging Asian competitors invest in Southern states.

Over the last two decades, for example, the number of automotive-related manufacturing jobs in Michigan has fallen 34 percent, according to Economy.com. By contrast, the number of automotive jobs in Kentucky rose 152 percent over that period.

“There is a definite shift away from the strongholds of American manufacturing to places that were never manufacturing centers,” said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “These international companies want a fresh start — not in a town like Detroit, with a long history in the auto industry, but in an empty field where people appreciate them.”

The shift carries with it not just thousands of well-paying jobs and billions of investment dollars, but also a sense of prosperity gained or lost.

In Georgetown, it means managing a rapidly growing population, being dependent on a single employer, and hoping that Toyota’s march to the top of the global automobile industry continues.

Fewer Jobs and Services

For Livonia, the shift means acknowledging that the industry that once provided its region the equivalent of civil service jobs can no longer be relied upon, forcing the city to shrink the services it can offer residents.

Despite signs at Livonia’s border boasting of “55 years of progress,” Mayor Jack Engebretson recently had to lay off 90 people and cut $5 million from the city’s budget. Seven elementary schools closed this fall because of falling enrollment. Wonderland, among Livonia’s original shopping centers, was torn down over the summer.

In once-prestigious neighborhoods like Old Rosedale Gardens, even price cuts do not help owners sell their historic properties. Detroit’s auto companies have also pulled back on moving employees around the world, meaning there is less of a reliable churn in the local housing market.

“Three years ago we had just as many people transferring in as out,” said Jeff Glover, a local Realtor. “Now it’s about three transferring out to one transferring in.”

Herb Miller, 80, moved to Livonia from Detroit in 1961 when he transferred to a job at the newly built G.M. bumper plant in town. He still loves Livonia, but rising crime concerns him.

“It seems like about the time that everybody was writing about what a great place this is to live, things started to change,” said Mr. Miller, recalling several murders that shook the community several years ago.

Although retailers have been clamoring to build on the west side of Livonia to serve wealthier exurbs, his section of town has been losing businesses. The closest shopping center, the 42-year-old Livonia Mall, is likely to be demolished within a few years. “They’ve got to do something about that — that’s a dead mall,” Mr. Miller said.

Livonia’s population, which exploded from 18,000 in 1950 to peak at almost 120,000 in the 1970s, now appears to have fallen below 100,000, according to an estimate by the Southeastern Michigan Council of Governments.

Today, Plymouth Road, the city’s longtime business corridor, is more of a reminder of the city’s past success than a shopping destination. The aging owner of Fonte D’Amore closed his Italian landmark restaurant this summer. Livonia’s annual holiday parade was discontinued three years ago because of budget constraints. Nearly all of its strip malls have vacancies.

There is no mystery why Plymouth Road is hurting. Michigan has the highest unemployment rate in the country, and both General Motors and the Ford Motor Company are eliminating tens of thousands of jobs through buyout and early retirement offers.

Workers at all three Detroit automakers live in Livonia, but it considers itself primarily a Ford town. Jobs at Ford originally helped attract residents who fled Detroit after the 1967 riots, and the company employs more than 4,000 people at its transmission plant on the west side of town.

For now, those jobs appear to be safe, and in fact, Ford recently filed paperwork to invest about $45 million to update the factory. But with Ford trying for its third turnaround in five years, that commitment could change.

“There are a lot of Livonia residents that are going to face challenges as Ford goes through its reinvention of itself,” Mr. Engebretson said. “We’re holding our breath.”

Smaller manufacturers in Livonia have been hit hard. The city has one of the Midwest’s largest industrial corridors, a six-mile strip of factories and warehouses along Interstate 96. In 1995, more than 95 percent of Livonia’s 40 million square feet of industrial space was occupied. The vacancy rate has more than doubled since then.

Officials recently started marketing the corridor with the slogan “Industry’s Highway” in the hopes of filling some empty buildings, ideally with companies that are not in the auto business.

“We don’t want to be tied in any significant way to any one industry because it’s just not a healthy thing to do,” Mr. Engebretson said.

As for Georgetown, it had no industry to speak of and only one McDonald’s when Gov. Martha Layne Collins made her first trip to Japan in the mid-1980s, hoping to lure a foreign auto company. She had watched as Kentucky’s northern neighbor, Ohio, landed two Honda plants and a big technology center, while to the south, Tennessee had lured both Nissan and won the Saturn plant.

An Enthusiastic Reception

She said she believed that Georgetown was an ideal location, set near the intersection of Interstate 75 which runs north to south, and Interstate 64, which travels east to west. It is also just 15 minutes from Lexington, home to the University of Kentucky and a small airport.

When Toyota began narrowing its options, the state Legislature approved a $147 million incentive package to help land the factory — 30 times what Ohio spent to land Honda, although half what Alabama would eventually spend to lure Mercedes-Benz.

Georgetown residents were excited by the possibilities. “I know what it was like here before Toyota came,” said George Lusby, the Scott County executive judge, the equivalent of a county administrator. “Back then, the stores were half empty.”

Still, there was criticism of the governor for seeking foreign investment, and fears among some residents that a foreign company might not be loyal to the state. “Toyota is now accepted as part of the fabric of Kentucky, but it wasn’t 20 years ago,” said Dennis Cuneo, who recently retired as an executive in Toyota’s North American manufacturing operations and is now a consultant to the automaker.

Given that Toyota has invested more than $5 billion to date in Georgetown, “I’d do it again tomorrow,” Ms. Collins said.

Among the original workers to land a job at the plant was Cheryl Jones, a manager at a local supermarket with no factory experience. Twenty years later, she is now vice president for manufacturing at Georgetown, and recently traveled to Mexico to help open a new Toyota plant there.

“I’ve been all over the world now because of Toyota and the plants that we have,” Ms. Jones said.

Workers in Georgetown sometimes find themselves stuck in the miniature rush hour that occurs in late afternoon, when pickup trucks and Camrys pour out of the factory and turn onto Cherry Blossom Boulevard.

The local population has nearly doubled in 20 years, to about 20,000. There are at least a dozen new subdivisions, and some houses have been built directly across from the Toyota plant.

So have dozens of smaller factories, creating something akin to the industrial corridor in Livonia. Prospective investors are constantly on the phone to Jack Conner, executive director of the Georgetown/Scott County Chamber of Commerce, looking for vacant land where they can build new plants.

The buildings are not all commercial. Just this decade, Georgetown has built a recreation center, complete with an outdoor skateboard park; new elementary, middle and high schools; and is expanding a Japanese garden. The Cincinnati Bengals now hold summer practice in Toyota Stadium, also used by Georgetown College.

Downtown Georgetown bustles with antique stores, an espresso bar in the old bank building and Fava’s, which recently got a face-lift and now sells T-shirts and postcards, along with its meringue pies. The city now has three McDonald’s and a Wal-Mart Supercenter.

An Uneasy Feeling

Yet, some worry that the prosperity will not last. Employment at the plant leveled off about two years ago, at about 7,800 workers, and there is little likelihood Toyota will hire many more, except to replace those who are beginning to retire from the factory.

Plant managers, however, are constantly lobbying the company for new work, and landing it. This summer, Georgetown began building a hybrid version of the Camry sedan, replacing production previously done in Japan. And there is a large swath of empty space inside the factory that could be used to add another model to the plant, perhaps a crossover vehicle or a Lexus luxury model.

“There will never be another Toyota,” Ms. Collins said. “There are other companies, there are other manufacturers, but there is only one Toyota.”

Back in Livonia, Mayor Engebretson remains optimistic that the city will regain a sense of prosperity. He readily acknowledged the challenges facing the city, which has fared better than crumbling factory towns like Flint, a national symbol of the auto industry’s decline.

“All in all, I think Livonia is still a very vibrant community, and I am convinced unequivocally that our brightest days still lie ahead,” he said. “People have fallen on hard times, but we’re working awfully hard to keep the status that has been enjoyed by this community for many years.”

The NYT also reports that the first Monday in October is known in legal circles as the start of the Supreme Court term. Similarly, on Madison Avenue, the first Monday in December has become familiar as the kickoff of the advertising forecast season.

And yesterday a flood of forecasts indeed flowed from analysts and agencies, all generally pointing to a challenging year ahead for the traditional media along with substantial growth for all things online.

(For those wondering why early December brings the predictions, it is because two brokerage firms, Credit Suisse and UBS, have long held their annual media conferences in the first week of the month. Other firms schedule the release of their forecasts at the same time, to ride the coattails of the competing conferences.)

Most forecasters are predicting growth in ad spending in the United States next year of 2 to 5 percent over 2006. That would represent a decline from the rate of growth in ad spending this year compared with 2005, which is expected to finish in the range of 3 to 6 percent. But it is not bad considering that 2007 will be missing two major events that help administer a hypodermic to ad budgets in even-numbered years: Olympics and national elections.

“You normally see a real drop-off in a non-Olympics, non-election year,” said Robert J. Coen, senior vice president and forecasting director at Universal McCann in New York, who opened the UBS conference.

Rather, Mr. Coen said, he believed that more marketers next year would increase ad budgets as they decide to “start turning their attention back to long-term communications” from a focus on cost-cutting.

Still, reactions to the predictions for 2007 depend upon the perch from which they are considered. Those in the traditional media like television and newspapers will no doubt frown after hearing that most forecasters expect at best flat growth in ad spending for them.

Those who sell ads on Web sites, on the other hand, are likely to be beaming at the high double-digit percentage gains being predicted for them.

“The trend that will continue to affect the media universe in 2007 is the ongoing shift in advertising dollars from traditional media into nontraditional media, most notably the Internet,” Fitch Ratings concluded in an outlook report.

Television, radio and newspapers will “experience slow growth and ongoing audience declines,” according to the report, “and ad spending continues to follow consumer patterns.”

For instance, the Newspaper Association of America is predicting that spending for ads on the Web sites of newspapers will increase a robust 22 percent next year from 2006. But ad spending in the print editions of those newspapers in 2007 will increase only 1.2 percent from this year, the association is forecasting, pulled down by a decline in classified advertising and no growth in demand from national advertisers.

An analyst for Credit Suisse, Debra Schwartz, questioned in a report whether even the prediction for an anemic gain of 1.2 percent was “too optimistic.”

A forecast from the Morton-Groves Newspaper Newsletter, issued last week, may be pessimistic enough for her. The publication predicted that ad spending in newspapers next year will fall 2 percent from 2006, a bigger decline than the 1.8 percent it is forecasting for this year compared with 2005.

(For ad spending on newspaper Web sites, the newsletter predicted an increase in 2007 of 23.3 percent from this year, coming after a gain of 34 percent it is forecasting for 2006.)

James Conaghan, vice president for business analysis and research at the newspaper association, offered a reason for the upbeat outlook for newspaper Web sites.

In a test recently started by Google to sell advertisements that appear in the print versions of 50 major newspapers, “the ad volume placed in the newspapers in the first three weeks has exceeded Google’s expectation for the entire three months of the test,” Mr. Conaghan said at the UBS conference.

“The advertisers and the publishers are also satisfied with the results,” he added.

Gordon Borrell, chief executive at Borrell Associates, who spoke with Mr. Conaghan, suggested that “10 years out, many newspaper Web sites could be as large as the newspapers that spawned them” in terms of ad revenue.

In another striking example of the divergence in forecasts for the traditional and new media, Mr. Coen, whose agency is part of the McCann Worldgroup unit of the Interpublic Group of Companies, predicted that ad spending on the four largest national broadcast television networks would increase just 3 percent next year from 2006.

In contrast, ad spending by national advertisers on the Internet will grow five times as fast, at 15 percent, Mr. Coen said.

Mr. Coen does not include search engine marketing in his estimates for Internet ad spending, classifying it as more promotional in nature. Another forecaster who does include it within his online totals — Steve King, worldwide chief executive at ZenithOptimedia, part of the Publicis Groupe — offered a prediction that Internet ad spending next year would grow 29 percent from 2006.

By comparison, Mr. King offered forecasts for many traditional media for percentage gains in low single digits like 1.5 percent for local radio and 2 percent for newspapers.

In fact, Mr. King said, he expected online ad revenue to grow at “seven times the rate for traditional ad growth.”

Internet ad spending as a percentage of the total for all American media will reach 7.1 percent this year, Mr. King said. He predicts that it will hit 10.4 percent in 2009.

Mr. Coen, who offers forecasts twice a year, predicted that American ad spending in 2007 would total $298.8 billion, up 4.8 percent from $285.1 billion in 2006. That is a full percentage point lower than the 5.8 percent increase he predicted last June when he gave his initial forecast for 2007.

Mr. Coen’s total for 2006 represents an increase of 5.2 percent from 2005. By contrast, last June he forecast a gain of 5.6 percent. Twice before, in June and December 2005, he predicted an increase of 5.8 percent.

Mr. Coen attributed the decline largely to “the beleaguered local sector” of ad spending, “which hasn’t done very well in traditional media,” he said, because local advertisers “continue to cut to the bone.”

Also, “consolidations are killing things” locally, Mr. Coen said, referring to combinations of local department stores, pharmacies and hardware chains, which are reducing the ranks of potential advertisers.

That was demonstrated — painfully, if you own a local newspaper — in Mr. Conaghan’s presentation. In the third quarter, when Federated Department Stores replaced a host of local retail names with the Macy’s brand, he said, the company’s ad spending in newspapers fell about 14 percent from the same period a year ago.

The declines were even more pronounced in certain Macy’s regional markets, Mr. Conaghan said, citing decreases of 34 percent in the South, 39 percent in the Midwest and 42 percent in the West.