Belgium: Effects of the economic crisis on wage indexation

Belgium is one of a small number of countries to use a wage indexation system linking wage rises to the cost of living. However, the recent economic crisis has highlighted problems with the system and the government has even introduced legislation to veto 'cost of living' wage increases as part of its austerity measures.

Background

An automatic wage indexation mechanism operates in Belgium to bind wage increases to rises in the cost of living. Since 1994, this indexation has been measured using the so-called Health Index, a system which tracks living costs but which excludes the price of tobacco, alcohol and fuel.

Wage indexation is a nationally accepted system, but is also subject to further discussion and negotiation at sectoral level by around 170 joint committees and sub-committees.

The application of wage indexation in Belgium can be divided into two main groups.

For the first group, which includes public servants and 40% of employees in the private sector, the indexation takes place in fixed steps of 2% each time the Health Index goes over the 2% threshold.

For the second group, which covers 60% of employees in the private sector, the wage indexation is calculated at fixed time intervals. These intervals can be monthly, two-monthly, three-monthly, four-monthly, six-monthly or annually – annually being most commonly used. Wages increase in line with the percentage change in the Health Index.

The indexation mechanism is symmetric, meaning that it follows the Health Index changes whether there is upward or downward movement. However, some sectoral collective agreements have ruled out or have limited the possibility of a negative wage indexation.

For more detail on the system see an analysis prepared by the National Bank of Belgium.

Effect of the economic crisis

Usually, the wage indexation is always applied, even if this causes a wage growth exceeding the two-yearly maximum nominal wage growth prescribed by the law of 26 July 1996 on the promotion of employment and the preventive safeguarding of competitiveness (in Dutch). However, since the recent economic crisis, some limitations to the wage indexation mechanism have been identified.

In 2007 and 2008, some sectoral collective agreements (representing around 25% of employees) created so-called all-in clauses. These clauses come into effect when inflation exceeds business growth at the moment when the sectoral agreement was made. All-in clauses give business owners the option of not applying part of, or in some cases all of, the agreed wage increases proposed by the indexation. In this way, the effect of the wage indexation system on the competitiveness of the Belgian economy can be tempered.

The economic crisis has had an important impact on inflation and also on wage indexation.

Since June 2014, prices have hardly risen at all and, as reported in the press, in some cases the crisis even caused negative growth in the Health Index (in Dutch). As a consequence, several sectors have applied a negative wage indexation and reduced workers' pay. Examples of this are in the banking sector (joint committee 310), the clothing sector (joint committee 215) and the construction sector (joint committee 124).

In combination with the government’s decision to prohibit wage increases above the automatic wage indexation in the period from 2013 to 2014, the lack of inflation had a positive effect on the competitiveness of the Belgian economy. Wages have not increased and some have even decreased. It has meant the so-called 'wage handicap' of the Belgian economy in comparison with some foreign trading partners is decreasing.

Policy decisions and social unrest

The new federal government decided in its coalition agreement of 9 October 2014 to create a 'wage index jump' in 2015. The ruling means workers will not  get the usual wage increase based on the Health Index figures during 2015.

In combination with other austerity measures, such as raising the pension age to 67, cutting 10% from the public sector wage bill, forcing long-term unemployed workers to work for their unemployment benefits, and cutting health spending, the coalition agreement created a lot of social unrest.

In November and December 2014, the Confederation of Christian Trade Unions (ACV-CSC), the General Federation of Belgian Labour (ABVV-FGTB) and the General Confederation of Liberal Trade Unions of Belgium (ACLVB-CGSLB) organised several regional and national days of action to protest against the measures. They were also unhappy that the government took the socioeconomic decisions without consulting the social partners.

A huge national day of strike action was held on 15 December 2014. It was the culmination of a succession of regional and national action days.

The trade unions, the government and the employer representatives are now quietly exhibiting a certain amount of will to restart new and constructive negotiations to end the unrest.

It is thought that Belgian wage costs may well have increased less than wage costs among the country's foreign trading partners in the period 2013 to 2014. This may give rise to more discussions on whether the planned index jump should go ahead and may smooth the way for more collective bargaining.

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