Once widespread in Europe, the system by which wages are automatically indexed in line with inflation now remains only in Belgium and Luxembourg, with other nations preferring other ways to protect salaries from being undermined by inflation.
On the face of it, the policy of wages tracking inflation seems a reasonable arrangement that, all things being equal, would ensure that relative costs stay the same, though actual charges vary. But then unlike in the economics classroom, all things rarely do stay equal – there are too many externalities that escape the theory – particularly with one as beguilingly rational as this.
Whilst automatic wage indexations might be an effective measure in periods of economic stability when the rises in prices are incremental, it delivers far less satisfactory results when inflation rockets. In fact, the reason most other countries dropped the system in the 1970s and 80s was its incapacity to rectify the menace of stagflation. Now as then, it seems to be losing its power to balance household budgets.
This is leading a growing number of Belgians to lose faith in the system, arguing it falls short of the protections necessary to prevent the most dire consequences of the current energy crisis. Moreover, the business concern that higher wages will make Belgium uncompetitive and push industry abroad gains weight if the cost of employment is drastically higher in Belgium than elsewhere.
With both businesses and employees despondent about the current indexations, could it be time for a new system of preventing real wages from devaluing? Economists are quick to caution against hasty changes, there is no perfect solution to the hardship we face currently. Though other countries do it differently, it will take hindsight to have a clearer idea of which mechanisms are better for safeguarding individuals in a globalised economy.
Belgium in Brief is a free daily roundup of the top stories to get you through your coffee break conversations. To receive it straight to your inbox every day, sign up below:
1. How the bombs changed Brussels, and how the city is still coming to terms with them
It was a moment that would live in infamy in Belgian history: on March 22, 2016, two bomb blasts in Brussels left 32 dead, shattering the city’s calm and traumatising the country. Read more.
2. Overwhelming majority of Belgians dissatisfied with wage indexations
The vast majority of Belgians do not believe that the system of automatic wage indexations is doing enough to protect them from rising prices, a recent study has found. Read more.
3. Brussels terror trial: What to expect from the first phase
The trial of the March 2016 Brussels terrorists begins in earnest this Monday, with ten suspects standing trial for the attacks that killed 32 people and injured over 300 people at the Maelbeek metro station and at Zaventem airport. Read more.
4. New fast train between Brussels and Amsterdam undergoes tests
The Dutch railway company (NS) has begun tests for a new fast train connection between Amsterdam and Brussels. The future connection, which would launch officially in 2024, would reduce the journey time by around half an hour. Currently, the journey takes close to three hours. Read more.
5. Alcoholism far more prevalent among over-55s, not young people
One in ten people in Flanders has a dangerous relationship with alcohol. While such problematic behaviour is often thought to be most common among young people, a recent study showed the risk is higher among people over the age of 55. Read more.
6. Belgium's budgetary situation 'worrying', Minister of Economy admits
Belgium's budgetary situation is "worrying," the country's Minister of Economy and Employment, Pierre-Yves Dermagne, has admitted in an interview with l'Echo. Read more.
7. Hidden Belgium: The site of the single most important battle in American history
‘Nuts!’ One word spoken in Bastogne in the winter of 1944 sums up the last great battle fought in Western Europe. General Anthony McAuliffe of the United States army was responding to a German ultimatum to surrender the besieged Belgian town of Bastogne. Read more.
