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October wage rise will damage companies, says business lobby

October wage rise will damage companies, says business lobby

by John MONAGHAN 2 min. 12.10.2021 From our online archive
Automatic 2.5% inflation-linked increase should be limited to those on the lowest incomes, says UEL group
The wage indexation has added to the burdens on businesses which are already struggling, the UEL said
The wage indexation has added to the burdens on businesses which are already struggling, the UEL said
Photo credit: Marc Wilwert

Luxembourg’s decision to automatically raise wages by 2.5% this month in line with inflation will have a negative impact on the competitiveness of businesses, a lobby group representing the country's private employers warned on Monday.

The move also “increases social inequalities” as higher earners will benefit from larger salary increases, the Union des Entreprises Luxembourgeoises (UEL) said in a statement.

Inflation during September triggered an increase of 2.5% for salaries and pensions in Luxembourg that took effect on 1 October. Consumer prices are on course to rise by 2.7% this year, the country’s official statistics agency Statec said at the time of the wage indexation announcement.

The automatic wage indexation happens every time prices for consumer goods and services jump by more than a certain threshold, normally 2.5%. Introduced in 2006, the measure last kicked in at the start of 2020.

The country’s official statistics agency Statec had initially predicted that inflation adjustment to salaries would take effect in 2022, but then revised that view in May, saying that faster-than-expected price rises meant it would probably happen before the end of this year.

While the wage indexation was a boost for employees “in these difficult times”, it also increased pressure on companies, the UEL said. “This indexation will have an impact on the competitiveness of our businesses (an increase in overall annual staff costs of €800 million) and in particular for those sectors which are labour-intensive; this worries us,” the lobby group said.

Companies in Luxembourg find themselves competing with firms in neighbouring countries which are “not subject to the same constraints, such as salary indexations or adaptations to the minimum wage”.

“The coming months risk being marked by inflation; something which will hit the profitability of businesses already severely impacted by the (public health) crisis,” the UEL said, referring to the spike in fuel prices.

Limiting the automatic wage indexation to a certain level of income would “protect the poorest” while keeping the overall costs to companies down, the business lobby group added.

“We find it illogical that the indexation increases the salary of someone on the minimum wage by €550 while someone…on €11,000 will see their salary go up by €3,300. On that basis, the indexation system accelerates social inequalities,” the UEL said.

Luxembourg’s minimum wage increased by 2.8% at the start of the year, despite strong criticism from business groups. The basic minimum gross monthly salary for unskilled workers currently stands at €2,201.93, rising to €2,642.32 for employees with qualifications.  

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