Inflation Hits Workers in Europe Too

The status of workers’ salaries in the face of inflation and the economic effects of wage increases continue to be significant topics of debate in both Turkey and European countries. OECD data shows that, except for Belgium, employee wages have decreased across Europe.

Variations in Wage Adjustments Across European Countries

Long-term, it is believed that the price-wage spiral will continue to have negative effects on the entire Eurozone. Wage increases are a prominent topic in European countries as well, with varying wage regulations among nations.

Legal Aspects of Eroding Salaries in the Face of Inflation

When examining salaries from a legal perspective in Europe, different practices can be observed. Countries like Belgium and Luxembourg automatically adjust wages for inflation, whereas in many other European countries, such adjustments do not occur automatically and are left to the dynamics of the free market. However, even in countries where wage levels are largely subject to negotiations, various mechanisms are used to prevent employees’ salaries from eroding in the face of inflation.

Examples of Wage Increases Despite Erosion

Despite the wage increases highlighted in these agreements, employee salaries continue to erode. According to an analysis published in the Italian newspaper Corriere della Sera, a trend of declining real wages persists in European countries. In Italy, for instance, real wages have decreased by approximately 7.5% compared to major OECD countries. Although at lower rates, the purchasing power of worker salaries is negatively affected by inflation in other European countries as well. Most OECD countries do not automatically adjust wages for inflation. Only Belgium and Luxembourg maintain the system of automatic wage indexation. This allows Belgium to be one of the few OECD countries where purchasing power did not decrease in 2023 compared to 2022. However, the mechanism is highly debated in Belgium, as employers argue that it poses a risk of the country losing its competitive edge. In Luxembourg, as inflation rises, wages increase. The wage indexation mechanism stipulates that salaries should be adjusted based on a 2.5% increase or decrease in the consumer price index compared to the previous six months.

Variability in Wage Indexation Across European Countries

In contrast, France, Italy, Sweden, Denmark, and the Netherlands do not require employers to index wages to inflation. Therefore, negotiations regarding wage levels are largely unrestricted. Wage indexation obligations exist only if they are stipulated in the employment contract or in collective bargaining, or if there is an established practice that grants employees the right to indexation. Nevertheless, in these countries, various methods are employed to ensure that employees’ salaries do not erode in the face of inflation.

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