Four questions on the indexation of wages to inflation, demanded by the CGT and dismissed by the government

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It’s a simple idea that comes up like a catchphrase and which, according to some, could settle the question of purchasing power: indexing salaries to inflation. A “evidence” on the left, which has become one of the watchwords of the CGT, and which opposes a categorical refusal on the side of the executive. Inflation, which reached 5.6% over one year in September 2022, with peaks of 10% for food or 18% for energy, puts the question of wages at the center of the debate.

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Automatically raising wages to follow the price curve is not the solution for the government. Emmanuel Macron systematically dismisses it and the Prime Minister, Elisabeth Borne, instead invites companies that can to increase wages. How could the French economy react to such a measure? What are its limits ? How is it in the countries that have kept such a measure? Franceinfo answers four questions on the subject.

1When was this device abandoned in France?

France has experienced a wage indexation system for 30 years, introduced in 1952, while the country is facing inflation of nearly 25% per year. Faced with this soaring cost of living, the government of Antoine Pinay decided at the time to freeze prices and introduced the sliding scale of salaries, which linked salaries to inflation. It was not until the end of the “Trente Glorieuses” and the two oil shocks of 1973 and 1979, with inflation approaching 15%, that this principle was called into question.

The mechanical increase in wages then feeds what economists call a price-wage loop: higher wages lead to higher production costs, which in turn lead to an increase in prices… and therefore again an increase in wages. .

“It’s a bit like the metaphor of the tube of toothpaste: we know the mechanism to get it out, but we don’t know how to get it back into the tube.”

Eric Heyer, economist and director of the analysis and forecasting department of the OFCE

at franceinfo

Central banks then raise interest rates. The indexation does not resist the turn of the rigor of 1983. It is abandoned by the socialist government of Pierre Mauroy. Inflation then falls back below 5%.

Since then, only the minimum wage is still indexed to the price index today. A measure which makes it possible to protect the most fragile, since in France, no employee can be paid below the minimum wage. This minimum wage is automatically revalued every year on 1 January and during the year as soon as inflation exceeds 2%. An exceptional “boost” can also be decided on an ad hoc basis by the government. The last dates back to 2012.

2Who is calling for a re-indexation of wages to inflation?

This demand for a re-indexation of wages to inflation has been brandished regularly for several months, in particular on the banners of the unions during the various days of mobilization this fall. This is still the case, Thursday, October 27, with a call for the demonstration of the CGT for “keep up the pressure“about government.

We also find this argument in the mouths of many left-wing politicians. “Wages must be indexed to inflation, at least for a large part of employees“, pleads again Thursday on France Inter Yannick Jadot, MEP EELV and former candidate for the presidential election.

On October 16, the rebellious deputy of the Somme, François Ruffin also stated on franceinfo that the indexation of wages to inflation “today seems a powerful necessity in the country“, recalling that”40 years ago, in 1980, a teacher’s salary was 2.3 times the minimum wage. Today, it is 1.2 times the minimum wage.“La France insoumise also proposes a significant increase in the minimum wage (SMIC), which would require increasing all low incomes and renegotiating salary grids.

3Why is the government against it?

This idea is systematically brushed aside by the executive. “If we want to create jobs so that working French people can live with dignity, the solution is not to reindex wages to inflation. Wage increases are not decided by the state”, Emmanuel Macron firmly affirmed Tuesday, October 26 on France 2, invoking the argument of the inflationary spiral. The Head of State rather invites dialogue in companies and a “fairer distribution” of profits, arguing that a re-indexation of wages could destroy “hundreds of thousands of jobs”.

The situation today is different from 1983 explains Eric Heyer: “We chose to limit inflation with the tariff shield instead of giving money directly to households“. Enough to absorb part of the shock suffered by the French economy, which according to Emmanuel Macron amounts to 85 billion euros. “The state took half of the shock, the question is who pays the other half“, specifies Eric Heyer. “If we index wages, companies take it all on themselves and it is likely that a large majority of them will not be able to afford it.“He also fears a”loss of competitiveness“who could”weaken the productive fabric” and lead to an increase in bankruptcies. An argument that some dispute, notably advancing the numerous exemptions from social security contributions on low wages.

Indexing is therefore not obvious. “There is no good solution“, recognizes the economist Henri Sterdyniak, co-founder of the Atterred Economists. “Either employees pay by losing purchasing power, or wages are indexed and a price-wage loop is triggered with inflation spreading”even though “it’s not so bad“, according to him. Henri Sterdyniak believes that The question to ask is whetherwe maintain the public deficit to maintain the tariff shield“. To find the necessary billions, it is therefore necessary to go through the tax and “raise the question of superprofits and tax the richest“. The question of indexing “the lowest wages” on inflation is also a possibility, assuming that the highest earners will suffer “loss of purchasing power“.

4Does this device exist elsewhere in Europe?

Today, four countries of the European Union have retained a system of total or partial wage indexation: Luxembourg, Cyprus, Malta and Belgium. In our Belgian neighbours, wages are revalued by professional sector according to a consumer price index. This revaluation is carried out either on a fixed date, or as soon as inflation crosses 2%. Today, the consumer price index is above 11% and is expected to average around 9% for 2022, compared to just over 2% in 2021, according to Statbel data. As a result, if the principle of indexation of wages to inflation has not been called into question by the government, it is increasingly denounced by the right and by the bosses.

“We understand the desire to protect purchasing power, but we must not forget the competitiveness side“, advances Christophe Ernaelsteen, adviser to the Federation of Belgian Companies. “The inflationary spiral is already being felt. After the energy price shock, there is a strengthening of inflation with the rise in wages“, he assures. The FEB estimates that wages will increase by “15 to 20%” over the 2022-2023 period: “It’s untenable“, worry the representatives of the employers, “it will be 5 to 15% with our neighbors“. They are therefore asking for the de-indexation of prices at the risk of seeing companies “go bankrupt or relocate“, “which will be a big problem for people too in the end“, concludes Christophe Ernaelsteen.


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