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The wage handicap of Belgian companies is rising so quickly that there is almost certainly no margin for them to rise faster than inflation in 2023 and 2024. The question is even whether it will be possible in 2025 and 2026.
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In terms of wage costs, Belgian employees are at risk of becoming 3 to 4 percent more expensive this year than their colleagues in neighboring countries. Rough economic estimates about the impact of inflation this year show that. This means that the wage handicap of Belgian companies is rapidly increasing.
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The reason for the widening gap lies in the Belgian system of automatic indexation of wages. This automatically causes wages to rise in line with store prices and protects the purchasing power of households. Our neighboring countries do not have this system. There, negotiations are delayed about surcharges, including inflation, so that wages only rise later.
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In the Netherlands, for example, real wages in collective labor agreements were 6.7 percent lower in March than twelve months previously. That’s because inflation is shooting up even faster than ours, without wages being adjusted yet. It means that companies there are much better able to keep costs – and job security – under control, but that families are more likely to take the brunt of the blow.
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Gap
In Belgium it works the other way around. Peter Vanden Houte, chief economist at ING Belgium, expects automatic indexation to increase Belgian wages by 7 percent this year. In the eurozone, wages are only expected to rise by 3 percent this year.
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These are, of course, rough estimates. Belgium calculates the wage handicap compared to Germany, the Netherlands and France. In Germany, minimum wages will rise in the course of this year. But on the other hand, according to the Central Council for Business, the Belgian wage handicap increased by 0.8 percent last year.
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“I therefore think that compared to the three neighboring countries in 2021-2022, the loss of competitiveness will be around 3 to 4 percent,” Vanden Houte estimates. Bart Van Craeynest, chief economist of the employers’ organization Voka, arrives at similar estimates.
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Wage negotiations
This will have major consequences for wages in 2023 and 2024. Negotiations on this will start between the unions and employers at the beginning of next year. At the end of this year, the Central Business Council will outline the contours of what is possible.
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These contours consist of a floor and a ceiling. The floor is automatic indexation: employers are obliged, without being able to negotiate with the unions, to let wages rise in line with inflation. The ceiling is the Competitiveness Act of 1996, which stipulates that wages must not rise faster than the pace of Germany, France and the Netherlands, three neighboring countries to which Belgian companies risk losing customers if Belgian wages become too expensive.
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no margin
For 2021-2022, the margin between that floor and that ceiling was still 0.4 percent, which the unions called ‘an alms’. With an additional 3 to 4 percent competitive handicap this year, the floor and ceiling are likely to touch in the wage negotiations in 2022 and 2023. Edward Roosens, chief economist of the Federation of Belgian Enterprises (VBO), expects that there will be no margin whatsoever. will be or even a negative margin.
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It means that collective wage bargaining will not be possible. Those who want to earn more can only change their position and be promoted, or look for other and better paid work.
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The big question after that will be whether the German, Dutch and French unions are negotiating such high wage increases that they will catch up with Belgian wages in 2023 and 2024. It is not certain that this will happen.
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German unions
To start with, French and German inflation are lower. And then there is the role of the trade unions themselves. ‘We see in Germany that the trade unions are holding back because of the war in Ukraine and are asking for job security rather than storage’, says Vanden Houte. Van Craeynest also notes that German and Dutch unions have a tradition of being more cautious than Belgian unions, and of placing job security above storage.
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Vanden Houte notes that in a situation of stagflation – low growth and high inflation – Belgium is also doubly affected. ‘Because then the wages here automatically rise, while abroad the high inflation is not translated into higher wages because of the smaller bargaining power of the unions. We experienced something like this at the beginning of the financial crisis in 2008-2009.’
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Van Craeynest therefore even wonders whether at today’s inflation rate it will be possible to rectify the situation in two years. In that scenario, if the German and Dutch trade unions do not push through, there would also be no room for wage negotiations for 2025 and 2026 to increase wages on top of automatic indexation.
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With unions already clamoring for the ‘alms’ of 0.4 percent surcharge in recent years, the loss of competitiveness is becoming a barometer not only for the vulnerability of Belgian export companies, but also for social unrest and nervousness in the federal government. .
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The loss of competitiveness is becoming a barometer not only for the vulnerability of Belgian export companies, but also for social unrest and nervousness in the federal government.
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The essence
- Belgian wages will rise by seven percent this year due to automatic indexation. In neighboring countries this is half less.
- This creates a competitive handicap of around three to four percent.
- Because this is taken into account in wage negotiations, there is a risk that there will be no room for collective surcharges on top of inflation in the next two to four years.
- The wage handicap threatens not only to make export companies vulnerable, but to lead to social and political unrest.
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