€500 cheque but no wage increase: Employers against automatic indexation

€500 cheque but no wage increase: Employers against automatic indexation
Many Belgain employers are complaining that wages are becoming unaffordable. BELGA PHOTO DIRK WAEM

Flemish employers' organisation Voka is asking for a so-called "index jump" of just 3%, meaning that the automatic adjustment of employee wages to inflation will be skipped once, compensated with a net premium of €500.

The automatic indexation (the adjustment of wages along with the increase of the cost of living) is becoming untenable for companies, Voka said. Instead, the organisation proposes an "index jump," which means that the usual wage indexation would be skipped once as a means of coping with rising wage costs.

In practice, the employers' proposal states that they would not pay out 3% of the planned 8% inflation through the indexation for 2022–2024. However, this would mean that employees' wages would fall behind the rising cost of living.

"The increasing cost of wages will have its victims. Our companies are competing with their hands tied behind their back," Hans Maertens, managing director of Voka, said in a press release. "An index jump is necessary if we do not want to ruin our future prosperity."

Today, labour costs in Belgium are on average 7% higher than one year ago and companies expect a further increase of 8% over the next year. A wage increase of more than 15% in the period 2022-2024 is "unaffordable for employers" and will "price our jobs out of the market," said Maertens. "We call on the Government not to wait until it is too late."

Handicapped by wages

The proposed adjustment to Belgium's indexation scheme, which would see the automatic wage indexation is skipped this time, is widely supported by Flemish companies: 86% indicate this is necessary to keep wages affordable for employers, Voka stressed.

"The current rhythm of wage indexation in Belgium increases our 'wage cost handicap' compared to neighbouring countries to 6%. This means that our companies are weaker than foreign competitors," said Maertens.

This "handicap" can be compensated by implementing an index jump of 3%. Consequently, wages would not rise by only 12.2% in the period 2022-2024, rather than 15.2%. In compensation to employees, Voka proposes a one-off net premium of €500.

However, employees are "not at all interested" Stijn Baert, Professor of Labour Economics at the University of Ghent (UGent), told Het Nieuwsblad. "It would mean that your wage would remain constant for an entire period while the cost of living increases. Only when the cost of living has then increased by 3% will your wage go up again."

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A one-off payment of €500 is far from compensating the skipped indexation, Baert stressed. "Suppose you earn €1,500 a month: a 3% loss on that is already €45. Over 12 months this comes to €540." Of course, those who earn more would be getting an even worse deal.

Only for those with low wages might this proposal briefly be appealing and €500 could work out as more than what they would get with the 3% indexation. "But still, this premium is a one-off while the indexation continues in the following years. In the long run, that 3% would be lost."

Unions have organised nationwide strikes in recent months, calling on the Government for better protections to deal with the cost of living crisis, to strengthen pension systems, boost public sector investment and improve social consultations between trade unions and politicians.

After the national strike of 31 May was met with criticism both by businesses and the Government – which has yet to show signs of bowing to union demands – another strike is planned on Monday 20 June with unions once again calling on the Government to protect people’s purchasing power.

'Not on the table'

Unions are calling for additional measures to keep household bills affordable, including changing the law to ensure wages can be raised fairly, a permanent VAT reduction to 6% for electricity and natural gas, an expansion of the target group for social rate relief, and wage equality between women and men.

While the leader of the Flemish liberal Open Vld party Egbert Lachaert said he appreciated the "constructive proposals" of employers' organisations, he stressed that there will be no index jump as requested by Voka.

"They should absolutely voice their concerns, but there is also a group of people on lower or middle wages who are really struggling today," he said on Flemish radio on Tuesday. "These are people who do not have a company car or fuel card and who earn between €2,000 and €3,000. For them, this crisis weighs very heavily."

Lachaert said that while the situation needs to be solved for employers as well, limiting the index jump to 3% "also means taking away an indexation of lower wages, and that is not on the table in the Federal Government."

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