Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence: Belgium
Selected Issues Papers, March 2, 2023
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- Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence: Belgium
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Bibliographic details
- Authors: André Geis
- Published: March 2, 2023
- Series: Selected Issues Papers
Summary
- Belgium maintains indexation of wages to inflation as part of its wage setting framework.
- Intensified price pressures since late 2020 have driven inflation to record levels, highlighting tension between compensating workers for purchasing power losses and maintaining international competitiveness.
- The paper explores avenues of reform to improve the performance and viability of the current setup.
Key findings and analysis
- Indexation to inflation creates a trade-off between protecting real wages and preserving international competitiveness.
- Large and multiple shocks (for example, volatile energy and food price increases) exacerbate the tension by pushing up wages through indexation, which can erode competitiveness.
- Productivity trends matter: deviations of labor costs between Belgium and its key export markets should be captured to better assess competitiveness dynamics.
Policy recommendations and reform options
- Explore excluding price increases in highly volatile components, like energy and food, from the indexation basis to reduce the need to restore competitiveness through prolonged periods of real wage restraint.
- Widen the flexibility of the indexation regime to alleviate the burden on firms during times of large and multiple shocks, thereby preserving investment and employment.
- Account for productivity trends in the indexation framework to better capture deviations of labor costs vis-à-vis key export markets.
Subject and keywords
- Subject: International organization, Monetary policy
- Keywords: collective bargaining, inflation, inflation indexation, international competitiveness, price setting, wage formation, wage indexation, wage setting
Content in this bundle
- Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence