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Wage indexation: Belgium’s taboo

As automatic wage indexation is largely responsible for the significant wage gap between Belgium and its neighbors, AmCham Belgium reflects why this counterproductive mechanism continues to survive all major reforms.

The Belgian economy remains in a fragile state. A flat growth rate of 0.3% in 2012 (instead of the predicted 0.8%) disappointed even the smallest expectations. As the country continues to struggle with very high labor costs, there is an urgent need to reform automatic wage indexation. Unfortunately, the mechanism appears to be an untouchable aspect of Belgian society.

Belgium’s system of automatic wage indexation is an exception in Europe. In order to guarantee a constant level of purchasing power for workers, and those who receive benefits, indexation links wage increases to the cost of living. This system protects lower income families, but it is also damaging Belgium’s international competitiveness. Indeed, Deloitte’s latest quarterly CFO survey reveals that financial officers are worried about their company’s competitive position. Hence, as we enter 2013, policy measures with a direct impact on the cost of labor are top of the priority list. The role of the government in this is critical as companies can only do so much themselves.

Unfortunately, reforming salaries in Belgium is an extremely sensitive issue, and the recent difficulties to reach an Inter-Professional Agreement are testament to that. Through an attempt to rein in the cost of labor by – partially –freezing salaries in 2013 and 2014, Di Rupo caused the socialist union FGTB/ABVV to throw up their arms in anger. Even though indexation and bracket increases remain, the socialist trade unions still feel that the potential to see an increase in salary has been removed. This demonstrates the extent to which wage indexation is seen as a fundamental part of Belgian society, and not as a benefit.

The ferocious and relentless nature of the debate on the future of automatic wage indexation indicates that the mechanism lies at the heart of Belgian society. Rather than being just another economic issue, this topic inevitably raises the question about the type of society Belgians want to live in. As the Belgian economy continues down its uncertain path, one thing is becoming increasingly clear: indexation plays a pivotal role in the future of the national economy, and one of these days, something’s got to give.

AmCham Belgium’s position

AmCham Belgium recognizes that as the issue is seen as a fundamental right in Belgium, it would be impossible to remove the mechanism altogether. However, AmCham Belgium urges the government to make key modifications to the indexation system by limiting the part of the salary that is adjusted automatically. This is a solution that could be met half-way by employers and the unions. To read about AmCham Belgium’s recommendations in more detail, please refer to our 2012 Priorities for a Prosperous Belgium.