“There is not much room for more wages”: Belgian wage cost handicap compared to neighbors amounts to 1.8 percent in 2024 | Money

The Belgian wage cost handicap compared to our neighboring countries would amount to 1.8 percent in 2024. This is evident from an interim report from the Central Business Council (CRB). The report immediately pushes employers and unions into their usual positions: “There is not much room for higher wages,” says the Federation of Belgian Enterprises (VBO). For Unizo, the automatic indexation of wages must be overhauled. Trade union ACV does see room for higher wages.

The labor cost handicap indicates the difference between the development of hourly labor costs in Belgium and our most important trading partners Germany, France and the Netherlands.

It turns out: due to strong inflation and the automatic indexation of wages, the wage cost handicap has risen from -0.6 percent in 2019 to 0.9 percent in 2022 and 2.9 percent in 2023. Not only did our country experience higher inflation than In neighboring countries, wages are also adjusted more quickly due to the automatic indexation of wages. Due to a catch-up movement in wages in neighboring countries since then, the wage cost handicap would decrease in 2024 and ultimately amount to 1.8 percent, according to the CRB.

Major consequences for wages

This has major consequences for wages in our country. “Under the 1996 law, the 2024 wage cost handicap will have to be automatically corrected,” the CRB reminds. According to the wage standard law, the wage cost handicap must be deducted from the maximum available margin for wage cost development in the years 2025-2026. A safety margin of 0.5 percent must also be removed from the margin.

If the law is applied, there is in principle little or no room for a wage increase.

Edward Roosens, chief economist of the Federation of Belgian Enterprises (VBO)

As a reminder: this year – just like last year – there is no room to increase wages on top of the index. The government did make room for a purchasing power premium for companies that farm well. The fact that our wages rose sharply, especially in 2023, is a result of the automatic indexation of wages.

“Biggest wage cost handicap in years”

The wage cost handicap faced by Belgian companies is “one of the highest percentages in years,” says Edward Roosens, chief economist at the FEB. There is not much room for higher wages, he says. “If the law is applied, there is in principle little or no room for a wage increase.”

The wage cost handicap is driven by the system of automatic indexation, points out the VBO. “That system is not healthy for our economy. Our companies are losing market share, exports are struggling,” Roosens warns.

© Shutterstock

Automatic indexing overhaul?

There is a similar sound at Unizo. “Wage costs in our country are still rising faster than those in France, Germany and the Netherlands. This puts constant pressure on the competitiveness and profitability of our SMEs,” says Unizo managing director Danny Van Assche. The employers’ organization wants the next government to take action. The system of automatic wage indexation as we know it must be overhauled.

A tax reform is needed so that employees have more left over. The invoice may no longer be passed on to the companies. The system of automatic indexation must be removed for Unizo: either the indexation of wages and the wage standard must be abolished and wages must be freely negotiated, or the index must no longer play a role for fossil fuel prices and must the real cost of electricity bills are taken into account. Companies that cannot cope with indexation should also be able to choose to accept a wage cost increase.

“Definite margin for higher wages”

“There is no wage cost handicap and there is indeed margin for higher wages,” says the Christian trade union ACV. According to the ACV, the actual hourly labor cost for the companies is much lower than the hourly labor cost used to compare with their neighbors. The union argues that wage subsidies and reductions on employer contributions should be taken into account, which is not happening now. That is the infamous “cheating software” that ACV regularly uses.

If these wage subsidies and discounts were to be taken into account, the hourly wage cost in 2022 would be 3.8 percent lower than its neighbors, it is said. The union certainly sees room for higher wages, and points to the high profits that companies make.

ACLVB chairman Gert Truyens.
ACLVB chairman Gert Truyens. © RV

Politicians must also take action after the elections for the liberal trade union. According to the ACVLB, if nothing is done, wage negotiations will no longer be possible in the coming years.

According to ACLVB, there is no direct impact, because the next wage standard will not be negotiated in the Group of 10 until early 2025. But the figures outline what can be expected for the negotiations of a 2025-2026 wage agreement. “The current wage standard law threatens to make wage negotiations virtually impossible,” the union says. According to the blue union, a reform is necessary so that balanced consultation becomes possible. “As always, we will act responsibly, but imposing a (quasi) zero margin on all sectors and companies for the third time in a row is unacceptable economically, socially and politically,” said ACLVB chairman Gert Truyens.

The liberal union also points out that the wage gap calculation does not identify tax cuts and wage subsidies and cites high corporate profits.