Employers need not fear a wage price spiral, as they support unions who are demanding steep wage increases. This is what Rabobank and ING economists say. “It’s only dangerous if it happens automatically, but that’s not the case at the moment. That was in the 1970s, says Marcel Klok, a macroeconomist and labor market economist at ING.
Klok explains that at that time wages automatically increased in line with the rate of inflation. ‘Now it is time for unions and employers to agree on a wage increase. (…). If you automate it, you’ll never be able to get rid of it, however, warns Clock. “But that’s not the case now. These collective bargaining agreements often result in something more reasonable than the ten per cent we expect for inflation this year.’
Leontine Treur, a labor economist at Rabobank, also believes a spiral in wage prices is exaggerated. On the contrary, you see that the current wage increases, of about 7 percent, have an inflation-extinguishing effect. Treur also suspects that employers use the “myth” of spiraling wage prices as a means of lobbying in collective bargaining with unions.
Belgians have automatic pay increases
However, Belgium’s southern neighbors use automated wage increases based on some inflation. ‘However, the compensation in Belgium is not for full inflation, but takes into account some components of inflation. This mitigates the “leapfrog effect” to some extent, I think,” says Klok.
However, this has a negative effect on employers in Belgium. ‘They have higher wage increases there and therefore higher wage costs. This can mean that they become less competitive on the international market. And that’s important for Dutch companies to watch.’
However, much is already being done in the Netherlands to maintain the purchasing power of households, economists say. They refer, among other things, to the purchasing power packages against the increase in energy and the price cap. “This contributes to a more favorable wage development,” emphasizes Klok. Additionally, Treur sees a trend for lower-wage employees to improve faster on average than higher-wage employees.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
