'Unprecedented' wave of wage indexations expected in coming months

'Unprecedented' wave of wage indexations expected in coming months
Wages in the hospitality and food industry will rise by almost 11% in January.  Credit: Belga/ Hatim Kaghat

Employees in a record number of sectors will see their wages being indexed in line with inflation in December as a result of the steep rise in inflation in recent months.

A record number of sectors will be indexing employees' wages in December and January. Belgium is among the few countries where the mechanism of automatic wage indexation is implemented with the aim of protecting purchasing power.

If the so-called "smoothed health index" (a four-month average figure for inflation calculated without taking into account the price of alcohol, tobacco, petrol and diesel) is exceeded (the so-called "pivot index"), this triggers an increase in wages and social benefits (usually of 2%) one month later. This happened for the second month in a row and the fifth time this year.

"We are facing a tsunami of sectors indexing in December and January due to high inflation," said Jean-Luc Vannieuwenhuyse of SD Worx Belgium's Knowledge Centre. For example, wages in the hospitality and food industry will rise by almost 11% in January.

He explained that the proportion of sectors affected is "at least three times higher than we ever saw in December."

While the inflation rate moderated itself this month after rising month after month since July, labour economist Stijn Baert stressed that this index was still exceeded again, because the calculations are based on the four-month average of the health index, meaning July 2022, when this index was a bit lower, was not included.

Good news for some

While this index being exceeded is good news for employees, as their wages automatically increase, it is less good news for employers due to labour costs rising sharply, which is heavily weighing on many businesses in the wake of consecutive crises, with some saying this risks making Belgium uncompetitive.

While Baert stressed that the automatic increase in wages in Belgium is not yet resulting in inflation accelerating more sharply than in neighbouring countries, for the time being, it remains to be seen what will happen from January onwards, as "hundreds of thousands of workers will suddenly see their wages increased by more than 10%."

Since each sector has its own agreements regarding indexation, the timing and degree of this can differ greatly.

In some cases, such as for civil servants, workers in the health care sector or in chemistry, indexation of wages happens at an unknown time, upon reaching this "pivot" or threshold. The level of indexation is fixed, often amounting to 2%. This marks the first time the government index has exceeded the pivot again after just one month, resulting in these wages increasing for the fifth time this year in December 2022.

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Meanwhile, those of the so-called PC 200 white-collar workers (employment agencies, IT, consultancy, etc), which is the largest joint committee in Belgium, will rise to 11.13%, but only in January, as this is always done annually on 1 January. The amount of indexation varies according to inflation.

"The agreements made in this PC immediately apply to almost 500,000 white-collar workers (at 60,000 employers) in the private sector," SD Worx noted. "We will not know the final index figure until the end of December, but it looks like this figure will be at least three times higher than last year (when it was 3.58%)."

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