This crisis is unlike anything many Europeans have experienced in their lifetime. The COVID-19 pandemic, already a once-in-a-generation crisis, has been violently rear-ended by Russia’s invasion of Ukraine. The resulting energy crisis and sky-high inflation now threaten an unprecedent drop in living standards. Low-income workers and vulnerable groups are being hit the hardest, but middle-class living standards are quickly deteriorating, too. Over half of European households say they are struggling to make ends meet. In key EU economies, like France, Germany and Poland, over two thirds of the population are worried about social unrest.
Inflation is not wage driven
While nobody denies the seriousness of the situation, a pernicious argument has slipped into public debate. Everywhere, representatives of employers and big business continue to warn against the danger that wage increases will push up inflation. They say that workers should “moderate” their pay demands (while making no such commitment for their own profits). The problem with this well-rehearsed argument is that it is simply not borne out by the facts. Real wages have fallen sharply across the economy and across the continent. The purchasing power of minimum wages has dropped by nearly 5% across Europe in only a year. There are no widespread wage hikes above, or even in line with inflation. The present price spiral is being driven by the rising cost of food and energy, and not by workers’ wage demands.
In contrast, some companies are doing quite well, with higher-than-expected profits leading to big dividends for shareholders. BP and Shell, for example, spent $7.7 billion on share buy-backs last year, before Russia’s invasion of Ukraine sent energy profits through the roof. Rystad Energy projects record-breaking profits of €776 billion in the oil and gas sector in 2022, 70% above last year’s high of €493 billion.
It is not just in the oil and gas sector where big profits are turning into fat dividends: the global dividend index shows a sharp rise in pay-outs across the board, with European firms paying shareholders 29% more than last year. Meanwhile, executive compensation continues to rise. This is a long-term trend: top corporate executives have seen their pay grow by more than 1000% over the past 40 years, nearly 100 times the rate of average workers. Today, the average CEO earns 278 times the wage of an average worker.
Workers need a pay rise and big business can afford it
It is clear that instead of compensating workers for the profits they produced during the pandemic, some companies are paying out record dividends and bonus packages to CEOs. The boom in CEO pay, and executive compensation more generally, has fuelled the growth of the top 1% and top 0.1% incomes, leaving ordinary workers with less and widening the gap between very high earners and the bottom 90%.
Low wages do not just hurt individual workers, they are bad for the economy as a whole. As long as workers have falling wages, they will spend less in the real economy and growth will suffer. Higher wages mean more money in people’s pockets, bolstering the overall economic outlook and improving social stability, as fewer people fall into the despair of poverty.
Workers’ wages need to rise in line with inflation, price increases, and productivity gains. In addition, Europe needs urgent action to shield jobs and workers from rising prices. But we also need longer-term measures to prevent this from ever happening again. Europe must control its own energy system, based on green power that is generated here in Europe. Reaching this objective will require massive investment, an ambitious long-term energy and industrial strategy and a deep reform of the EU energy policy framework, which is too short-term and relies too heavily on the market.
The austerity policies deployed during the last crisis must be avoided at all costs. Wage restraint, coupled with massive cuts to public expenditure, will lead to a longer period of depression and possible social unrest, as it did following the 2008 crisis. The mistakes of the past, if repeated, will lead to the same bad outcomes today.
Workers need a pay rise. All Europeans need lower bills and help to make ends meet.
Of course, politicians need to pass measures to help workers and their families with the cost-of-living crisis. But employers must also shoulder their responsibility, especially when they have the means to do it.
The money is there, it is just going to dividends and executive pay, not wages. Instead of arguing for wage moderation, employers should ensure that workers get compensated for the erosion of their purchasing power by giving them their fair share of the wealth they have created. By increasing wages, employers would reinforce stable internal demand and thereby contribute to a fast recovery.
IndustriAll Europe, the European trade union organisation which I lead, represents seven million industrial workers across the continent. Their trade unions are today all demanding the same thing: government action to tackle the cost-of-living crisis and a pay rise that protects the standard of living of ordinary Europeans. With one voice, we are launching a campaign, with five simple messages:
- A pay rise that guarantees decent living standards
- Fair taxes on companies and the wealthy
- Support for workers affected by the cost-of-living crisis
- Financial support for companies struggling with energy costs, with guarantees to save jobs and raise wages
- Sectoral bargaining so workers can win better pay
These demands point to a way out of the crisis, based on raising the standard of living and putting Europe on a path to sustainable, long-term growth. In the other direction lies only a repeat of the painful experiences of the last crisis. It is time for governments, the EU and industry to choose.