Should salaries be indexed to inflation? After two years of unprecedented price increases in Europe for decades, the question of linking remuneration to inflation has returned to the political debate.
The main example is Belgium, which, despite this indexation, does not seem to have experienced an inflationary spiral, a feared consequence of the “price-wage” cycle.
In force since 1920 and with the creation of the first retail price index by the Belgian Ministry of Industry, the indexation of wages to prices has been practiced for more than a century. But, contrary to popular belief, this is not a legal obligation, as the newspaper Le Soir reminds. Employers use it widely, but they may decide not to increase their employees in proportion to inflation.
That said, what about the evolution of salaries in the kingdom compared to its European neighbors? In a note, the company Asteres compares the increases in Belgian real wages (taking into account inflation) in the last two decades with those of the main European countries.
The conclusion is clear. Belgian employees are no better off than the French, the Germans, the British or the average OECD population since the beginning of the century. The increase in purchasing power of Belgians was around 7% between 2000 and 2022, compared to almost 15% for Germans and more than 20% for British and French people.
Over a relatively long period, marked by very low inflation, Belgians do not seem to take advantage of this mechanism to gain purchasing power. How to explain this paradox?
Furthermore, the indexation practiced in Belgium does not take into account the evolution of prices of all products. Tobacco, alcohol and especially fuels are excluded from the calculation of the increase rate. During periods of sharp price increases at the pump, for example, Belgian employees do not benefit from the mechanism. On the contrary, the French minimum wage is indexed to the inflation suffered by the poorest 20% of households. Because minimum wage earners have greater sensitivity to price increases, the minimum wage tends to rise at a faster rate than inflation.
Belgians lose more than win more
If Belgian indexation has not particularly benefited wage earners for 20 years, the situation is somewhat different since the price increase at the end of 2022. It must be remembered first of all that the price increase was much greater in Belgium than in France , exceeding 10%. year-on-year since the second quarter of 2022, when in France the peak was only 6.3% in February 2023.
However, wage increases have been higher in Belgium than in France for two years, even reaching 10% in the first quarter of 2023, compared to around 4.5% in France.
However, they were initially lower than inflation and the Belgians lost more purchasing power than the French until the fourth quarter of 2022 (-5% for the former, -2% for the latter).
But once inflation took hold over time, the Belgian mechanism better protected employees’ purchasing power. Real wages exceeded 5% in the second quarter of 2023 in Belgium with the fall in inflation in recent months. A significant increase that, however, offsets a more marked loss of purchasing power (of around 5% between the end of 2021 and the end of 2022) compared to France.
On the French side, the increases granted to all salaries this year ended up neutralizing inflation with a zero gain in terms of purchasing power, but after a smaller loss (of around 2%) in 2022.
More protective of low wages with the increase in the minimum wage indexed to inflation, the French system is, on the contrary, less favorable in periods in which high inflation takes hold over time. However, in a period of price stabilization such as that observed in the first two decades of the 21st century, the Belgian system has not proven to be more favorable for wage earners, quite the opposite.
Source: BFM TV
