Wages are rising at a rapid pace: ‘Not seen since the 1970s’ | Economy

All brakes are now loose in the negotiations for new collective labor agreements. In May, the unions again managed to agree on substantially higher wage increases. May is the sixteenth month in a row that wages have risen.

Agreements of ten percent more wages are no longer an exception. But those increases are not universally accepted by the unions. This year is especially hard. In 2021, the average wage increase was still 2.1 percent. Last year it had already risen to 3.8 percent and this year an average of 7.3 percent more wages have been agreed up to May. Wage growth is also high from a historical perspective. “We haven’t seen this since the 1970s,” says Jannes van der Velde of the AWVN.

There are two reasons why wages are rising sharply: high inflation and the tight labor market. The unions want workers to be compensated for the high inflation. Everyone notices that daily groceries are becoming more expensive. Especially people with low salaries can hardly make ends meet due to the loss of purchasing power. The unions therefore want to restore purchasing power for the people.

Another factor is that the unions see that the profits of the companies are increasing. This feeds the idea that companies benefit by raising prices even more, while workers foot the bill because wages rise less quickly.

What is inflation and how does it arise? We explain it in the video below (text continues below the video):

Due to the tight labor market, they are now strong in negotiations with employers. They pull the wallet to keep the staff. Or they hope to become attractive to potential employees with higher wages.

In addition, the willingness to act is high. If employers do not act quickly and generously, actions and strikes will soon follow. The AWVN also sees that labor relations are hardening. Unions are quicker to seek confrontation. This increases the pressure on employers to pay more.

Accelerating wage increases are leading to growing unease. Klaas Knot, the president of De Nederlandsche Bank, recently warned of a wage-price spiral. Then firms raise prices because of higher wages, then wages rise again because of higher prices, and so on.

The AWVN notes that many employers are unable to fully pass on the higher wages in their prices. Other cost increases, for example of raw materials and energy, are also often not fully passed on by companies.

That eats away at the margin, so the profit that companies make, says Van der Velde. “This can force companies to take cost-cutting measures.” And one of those measures is to reduce personnel costs by laying off people.

The employers think that the unions look far too much at the short term. They have been warning for some time that the profitability of companies is coming under pressure. It is feared that companies will have a hard time, especially if the economy cools down. And substantial wage increases accelerate that process, the employers warn.

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