Inflation through the roof, but wages barely rise with it

The average wage increase in the collective labor agreements that were negotiated in November is even slightly below that of 2.4 percent in October. This is apparent from the provisional figures that employers’ association AWVN has provided to RTL Z on request.

For the full year to date, wages have increased by an average of 2 percent, which is lower than the 2.3 percent average increase last year. And that is also less than the average inflation rate of 2.4 percent this year.

Millions of employees

In total, 300 collective labor agreements have been renewed so far this year, for a total of 3.2 million employees. No agreements have yet been made for 150 collective labor agreements (accounting for 1.1 million employees) that will expire this year. This applies, for example, to healthcare, where the fifth round of negotiations has not resulted in an agreement, the FNV reported yesterday.

Wages often do not rise at the same rate as inflation. There is in any case some delay, because collective labor agreements are agreed for a longer period. There is about a year between what happens in the economy and until this is also reflected in wages, according to the AWVN.

For example, wages rose by 2.3 percent in 2020, while the economy went through a deep depression due to the corona crisis. That trough is now also reflected in the collective labor agreements concluded this year. Because the economy is improving again, the AWVN expects wages to rise even more.

Inflation ghost

Inflation can play a role in this, because as an employer you want to remain attractive when looking for personnel, advises Laurens Harteveld, policy advisor at the AWVN.

But in general he advises ‘to ignore the inflation specter’. It is much more important to look at how an individual company or the sector is doing, says Harteveld.

Many economists will be welcomed with a nod in agreement, no matter how annoying for employees. The theory is that raising wages to compensate for high inflation will lead to the so-called wage price spiral, where inflation will only continue to rise.

Consumers with higher incomes will spend more, which means that there is more demand than supply, which causes prices to rise further, Ronald Dekker, labor economist at TNO recently explained.

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