New demands for wage indexation reform

The automatic indexation of wages and pensions has become a major issue for people in Belgium and for its government. The European Commission, employers’ organisations and the Belgium National Bank have all criticised the system. Unions, nevertheless, insist indexation must stay. Although split on the issue, the government is under pressure not only from domestic interest groups and the EU, but also from the fallout of the financial crisis, and has agreed to consider reform.

Background

Belgium is one of the remaining countries in Europe to have an extensive index-linking system for determining increases in wages and benefits (BE1105011I). At the end of June, the European Commission joined calls for Belgium to rethink its policy of linking wages and pensions to an index of around 500 products and services. Employers’ organisations have already asked for urgent reforms. The EU is also keen for all Member States to link retirement age to life expectancy, but so far Belgium has been one of the few countries in Europe to resist the call.

Belgium’s Prime Minister, Elio Di Rupo, has insisted: ‘Europe will not decide for all Belgian citizens.’ But this has created tension among politicians, with some criticising the Prime Minister for wanting to pick and choose the parts of EU membership he is willing to accept – described as ‘Europe a la carte’.

Until recently, the longest political crisis in Belgium’s history, at one point leaving it without a formal government for almost a year and a half (BE1102021I), had pushed the issue into the background.

Belgium finally has a new federal government that took office at the end of 2011. Pressured by the economic crisis, the demands of the European Union and the opposition, the new government has embarked on an ambitious list of reforms in employment and social affairs (BE1112021I). With a huge amount of work to do in a short time, it was initially decided to put the indexation question on the back burner for a while. However, the publication of a report by the Belgian National Bank on indexation brought it to the fore again.

Bank report

According to the Belgium National Bank report, Indexation in Belgium: extent, nature, and consequences for the economy, the country’s current automatic wage indexation policy is harming the competitiveness of Belgian companies in foreign markets. The report also says that indexation impedes the creation of jobs. It does not recommend the ending of wage indexation, but does suggest that it is in need of reform.

The report had a big impact on industrial relations in Belgium, and indeed all social partners reacted to the report. Employers’ organisations were quick to support the bank’s view, while trade unions reaffirmed opposition any changes in the indexation system.

Social partner reactions

Through a wave of press releases, social partners have made their views clear.

Trade unions’ position

The Belgian General Federation of Labour (FGTB) said it was outraged by the bank’s report, and said the content was unacceptable. Indeed, union leaders considered the report represented a violation of the collective agreements and a breach of solidarity. They were also worried about other issues that could affect their members, such as an increase in value-added tax.

The Confederation of Christian Trade Unions (CSC) reacted in a similar way to the FGTB, objecting to the report’s ‘fruitless provocations’. The Federation of Liberal Trade Unions of Belgium (CGSLB) pointed out the importance of automatic wage indexation and reasserted its view that the current system should stay.

Employers’ position

By contrast, the Belgian Federation of Employers (VBO), the Walloon Union of Employers (UWE), the Union of Middle Classes (UCM), the Organisation of Self-Employed (UNIZO) and the Flanders Chamber of Commerce and Industry (VOKA) issued a joint press release in which they stated: ‘The time is coming to discuss the topic constructively.’

They backed the recommendations of the European Commission and those of international authorities, such as the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF), and their determination to reform the overall policy of automatic wage indexation.

Commentary

No consensus has been reached so far on the issue. Indeed, even among politicians there is no agreement. However, Belgium still has many issues it needs to tackle in the employment field as well as the institutional one.

Politicians are busy trying to find solutions to help the country through the global recession, which means the issue of automatic wage indexation is too complex to be a current priority. Nevertheless, there are increasing pressures to reform the wage indexation system, so it will be difficult to leave it on ice for too long.

Michel Ajzen, Institut des Sciences du Travail, UCL