Overwhelming majority of Belgians dissatisfied with wage indexations

Overwhelming majority of Belgians dissatisfied with wage indexations
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The vast majority of Belgians do not believe that the system of automatic wage indexations is doing enough to protect them from rising prices, a recent study has found.

73% of Belgians responded that they feel that automatic wage indexations are an inadequate safeguard against the country's high inflation rate.

The survey, which was conducted by Le Soir and other Belgian media outlets, showed that results were especially pronounced in Wallonia, where 77% expressed their dissatisfaction with the indexation policy. In Brussels, the figure was only slightly below the national average, at 70%.

"This result is not surprising," Philippe Ledent, an economist at ING, told Le Soir. "The respondents are right in the sense that automatic indexation is indeed failing to protect them from rising prices and the consequent decline in purchasing power."

The survey also found that 66% of Belgians believe that their purchasing power has decreased this year, while 61% expect it to fall again next year. Notably, the results indicate that Belgians' current economic outlook is even more pessimistic than it was during the Covid-19 pandemic: in December 2020 a mere 37% of Belgians expected their purchasing power to decrease over the following year.

Twin sources of sorrow

According to Ledent, there are two main reasons why so many Belgians are dissatisfied with the country's wage indexation scheme.

The first is that such indexations invariably occur only after several months of high inflation have passed, which means that for long periods of time workers are exposed to the harsh reality of rising prices without any state-mandated wage support. (It is possible that an "unprecedented" wave of scheduled wage indexations in the coming months might go some way toward assuaging Belgian citizens' concerns in this regard.)

The second, and arguably more important reason is that the wage indexations themselves typically fail to keep up with the actual rate of inflation. This is due to the fact that the indexations are determined based on the average increase in prices of a certain set of goods and services, many of which are barely consumed during times of economic crisis.

For instance, technological advancement coupled with an overall decline in demand have led to a decrease in the cost of televisions over the past few months. However, because televisions are included as one of the goods and services against which the wage indexations are calculated, the decrease in the cost of televisions will lead to a decrease in the overall rate of wage indexation. This leaves people less able to purchase essential goods such as food.

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Interestingly, Ledent was reluctant to infer from the survey's data that Belgium should adopt a system more similar to France's, which does not have automatic wage indexations but instead energy prices are strictly capped.

"It is too early to draw conclusions, even if it noteworthy that a system designed to protect purchasing power provokes such dissatisfaction," Ledent said. "But from an economic point of view the debate is interesting. It will only become clearer much later as to the effectiveness of the various systems that have been put in place in various countries to protect consumers' wallets. The current inflationary shock is of such unprecedented magnitude that there is no perfect system."

Belgium's current system of wage indexations was introduced in response to rampant inflation in the aftermath of the First World War. It is the only eurozone country other than Luxembourg in which both public and private wages are automatically indexed to inflation: many eurozone countries abolished similar schemes during the 'stagflation' crisis of the 1970s and early 1980s. (Belgium only decided to suspend, and not abolish, its scheme around the same period.)

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