At first glance, Belgium seems to have found the answer to the cost of living crisis that is gripping Europe. In this prosperous country where trade unions remain relatively powerful, wages, pensions and benefits rise automatically in line with inflation.
Many governments abandoned similar policies after the oil price shocks of the 1970s, but Belgium has continued to protect workers’ wages in this way. Luxembourg is the only other European country that still fully links wages to prices, although a few other countries have more restricted indexation policies.
Jean-Luc Vannieuwenhuyse, a legal expert at the human resources services provider SD Worx, has forecast a “tsunami of indexation” resulting from high inflation, which hit 12.27% in Belgium in October, the highest rate since 1975.
The vast majority of Belgian workers are protected, and yet indexation has not eased everyone’s worries about the cost of living.
Aby-gaelle Urbain, a 31-year-old cleaner bringing up four children in the former mining town of Charleroi, says she scours supermarket shelves for special offers and has reduced her heating to three hours a day, but is still finding it hard to make ends meet.
“Every day I am thinking: am I going to have enough money to feed my children at the end of the month?” said Urbain, who is also a delegate for a trade union confederation. “We’re not even into negative temperatures yet. How are we going to manage in full winter?”
She said she had received an indexation-linked pay rise but found prices were still outpacing what she earns.
She is far from alone: 73% of Belgians think automatic indexation is not enough to compensate for higher prices, according to an Ipsos poll for Le Soir published on Monday. More than two-thirds said their purchasing power had diminished in the last year, versus 26% who thought it had remained stable and 6% who said it had grown.
Analysts say the pessimistic view in the survey, which was carried out in late November, may reflect a lag in wage increases. While some employees, such as those in the gas and electricity sector, get a salary increase the month after inflation hits a certain threshold, others have to wait until the start of a new year.
Indexation also excludes “unhealthy” goods, such as petrol, cigarettes and alcohol. When it comes to petrol, that hurts people such as Urbain, who depends on her car to travel to clients in the countryside.
The biggest problem may be that energy prices are rising much faster than general inflation: the price of natural gas was 64% higher in November 2022 than in the same month the previous year, while electricity was up 42%. In that context, it is little consolation that occasional purchases in the inflation basket, such as TVs and smartphones, have become cheaper.
“The survey respondents are right in the sense that automatic indexation fails in effect … to protect them from the rise in prices and the consequent decline in purchasing power,” Philippe Ledent, an economist at ING, told Le Soir.
Unions have been angered by a proposal from Belgium’s government for a real-wage increase of zero. Under Belgian law, the federal government proposes real-wage levels (beyond indexed increases) and can legislate to enforce the rate, if employers and unions fail to agree on its proposals. Government sources think the prospect of bosses and unions agreeing on a zero-wage increase is probably nonexistent and expect to be legislating the salary cap before the end of the year.
Unions have already organised two general strikes in 2022 and are planning large demonstrations on 16 December. “Since the financial crisis, real wage increases (over and above indexation) have been nonexistent,” the three main trade union confederations have said. Unions object to a 1996 law on salary norms, which limits the scope for real wage increases by benchmarking them against France, Germany and the Netherlands.
Meanwhile, Belgian employers have been calling for a freeze in automatic indexation, arguing that the policy puts them at a disadvantage versus neighbours who do not face automatic increases in their wage bills. Without changes to indexation “the Belgian economy is going to drive into the wall,” the Federation of Belgian Enterprises said in June. Firms would delay investment, while the country risked a wage-price spiral that accelerates inflation, the FEB argued.
Paul De Grauwe, an economist at the London School of Economics and former Belgian MP and senator, does not see much evidence of a wage-price spiral. Belgian inflation is close to the European average, he points out, and its consumer prices index in November was slightly lower than Germany’s (11.3% as estimated by Eurostat).
Indexation could prove tricky for some firms, however. “The adjustment will be 10-11% all at once in January, so that is potentially a big shock,” De Grauwe said.
He does not see trade unions starting a major campaign of industrial unrest, pointing out that “the average Belgian worker, unemployed [person] and pensioner” had not lost purchasing power compared with people in the UK, where there is a “total absence” of an indexing mechanism.
Such international comparisons may be cold comfort for Belgians who are struggling to pay their bills. “I am in crisis every day,” Urbain said. “Every day it’s a permanent stress. It’s a fear in my stomach.”