wage stagnation will only hinder growth and stand in the way of a sustainable recovery

Workers and their trade unions continue to fight for wage increases in an increasingly difficult context. Inflation is soaring across Europe, eroding workers’ purchasing power. Purchasing power was already weak before the pandemic. Then, the ECB was requesting wage increases to counter the decrease in real wages, because the resulting low demand was hindering growth and preventing private investments. Now, employers are persistently sticking to their narrative of wage moderation, failing to recognise that wage increases are both an economic and a social necessity for a fair wage-led recovery.

Employers warn against a wage-driven inflation. However, evidence shows that this is not the case in the current context. Core inflation, which excludes the volatile food and energy prices, is steady at 2.6%, close to the ECB 2% target. Recent Eurostat figures show that the current inflation spike is driven by the explosion in energy prices (not wages), which rose by 26% in December 2021 compared to 2020. In addition, the supply chain bottlenecks and labour shortages continue to cause delays and push up costs for companies, resulting in higher prices of many goods.

It is uncertain how long the energy crisis and shortages will last, but there are fears that inflation may last longer than expected. This is worrying, as increasing energy and food prices, coupled with lower purchasing power, are pushing households to their limits:

  • The UK could be close to a “cost of living catastrophe” unless the government intervenes. Energy prices will soar by 50% in April, when taxes are also scheduled to increase and inflation is predicted to rise to 6.8%. Wages are set to increase by 6.6% only.
  • In Poland, inflation reached 7.8%. Coal miners, who are required to work overtime and at weekends to avoid interruptions during the energy crisis, now demand a pay rise that reflects the value of their efforts.
  • In Belgium, trade unions have launched a petition against the Belgian law limiting wage bargaining. Belgium is one of the few remaining countries where wages are indexed to inflation. Employers are aggressively pushing for an indexation freeze.
  • In Spain, inflation is soaring at 5%, while wage increases lag at 2%. There is also positive news, as the social partners and government have reached agreement on a labour reform. The reform corrects the disastrous provision of 2012, which dismantled collective bargaining and allowed companies to unilaterally change working conditions.
  • Turkey faces a dramatic situation due to the depreciation of the lira and record inflation. Trade unions point to increases in the price of food by 80%, of electricity by 155%, and of gas by 43% in 2021. Trade unions have now reached a collective agreement which improves the situation for workers, but the volatility continues to raise concerns.

Meanwhile, companies registered record corporate profits last year, and dividends paid in 2022 are expected to exceed the pre-crisis level by 18%, amounting to $2,094 billion, after already rebounding strongly in 2021. However, instead of compensating workers for the profits they helped produce, companies are investing in their own shares. This is particularly outrageous in cases where companies benefited from public support schemes and job retention schemes.

Isabelle Barthès, industriAll Europe Deputy General Secretary:

“It’s high time that employers do the decent thing and ensure that workers get their fair share of the wealth they created and the recovery they helped ensure. Arguing for wage moderation is not called for. On the contrary, wage stagnation will only hinder growth and stand in the way of a sustainable recovery.

Austerity and a low-wage recovery, like the one that followed the 2012 recession, must be avoided at all costs. Instead, Europe needs progressive and forward-looking policies to ensure a fair distribution of income. Internal demand remains the key driver of economic recovery, underpinned by strong wage increases.”

Contact: Andrea Husen-Bradley (press and communication), Patricia Velicu (policy adviser)