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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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European Foundation for the Improvement of Living and Working Conditions (Dublin Foundation)

Wage setting and indexation in Europe

Pact for the Euro: what future wage-setting? [23 March 2011]

http://www.eurofound.europa.eu/areas/industrialrelations/wagesetting.htm

[excerpt]

The recently adopted Pact for the Euro establishes a mechanism for the coordination of economic policies. The Pact emphasises the importance of increasing  competitiveness and promoting employment along with strengthening and stabilising public finances. One of its proposals, that competitiveness could be improved by adjusting wage-setting arrangements or wage-indexation mechanisms, has sparked a debate across Europe.

Wage formation in general – and the periodic adjustment of wage levels in particular – is the result of a complex process that is shaped by industrial relations outcomes, as well as considerations such as economic growth, inflation, productivity and labour market developments. In the majority of countries in the European Union, systems of wage formation are based on collective bargaining. Major differences exist, however, as regards the predominant level of bargaining and the links between these levels. One of the main differences in this regard concerns the involvement of either individual employers or an employer association, the latter resulting in so-called ‘multi-employer bargaining’. Some EU Member States apply a system of ‘automatic’ wage adjustment procedures – also known as ‘wage indexation’.

In contrast to autonomous collective bargaining, wage indexation allows for employees’ current purchasing power levels to be maintained, regardless of the outcomes of industrial relations processes. Wage indexation thus provides for wages to be adjusted – and usually increased – on a regular basis, according to an agreed indicator that reflects general price developments. Where they exist, wage indexation systems are subject to debate among the social partners as well as academics in the field of economics and industrial relations. As a major point of concern, wage indexation has been held responsible for fuelling inflationary pressures. In countries with high levels of inflation, wage indexation is perceived as encouraging a self-perpetuating inflationary spiral. These views have consequently led to the abrogation of indexation as a means of controlling inflation in a number of European countries during the 1980s and 1990s.

Eurofound has carried out significant work in the area of wage setting mechanisms over a number of years.

AND MORE...including STUDIES....

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  
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