Dhe Eurowings cabin crew is enjoying a privilege that many employees can only dream of at the moment. The salary of these employees of the airline, a Lufthansa subsidiary, is automatically linked to inflation. Namely by collective agreement: as of January 1st next year, wages are to rise in line with the average inflation rate for this year.
If that’s not far from double digits, which most economists think it will be, then wages will actually increase by that percentage. “The increase will be paid out for the first time with the pay slip in February 2023,” says Norbert Reuter from the Verdi union. A second, similar salary adjustment is to be made again in December 2023, based on the monthly inflation rates in January to October next year.
Wages that are directly or indirectly linked to inflation: This is a phenomenon that is more common in other countries, but not as widespread in Germany, says Dominik Groll, an economist at the Kiel Institute for the World Economy (IfW). There is something similar for the amount of the rent in some leases. In times when inflation was weak, neither played such a big role. Now, however, the inflation rate in the euro area has reached double digits for the first time since the founding of the European Monetary Union – that’s where it becomes very relevant.
In 2021, the European Central Bank (ECB) had an investigation carried out into how many employees in the euro area fall under such regulations for inflation-indexed wages. She came up with about 3 percent of the private sector workforce in the euro area with direct automatic couplings. The number is larger if you include indirect connections, minimum wages and state employees.
Countries where this phenomenon is particularly important are Belgium, Cyprus, Malta and Luxembourg. When the current increase in inflation at the ECB was initially considered to be only a temporary development, ECB chief economist Philip Lane once brought up the subject of exceptionally suspending the inflation indexation of wages for this reason, so as not to fuel price developments even more from this side. Haven’t heard anything about that for a long time now.
“In countries like Belgium, there are more inflation-indexed wages, in Germany this is relatively rare,” says Hagen Lesch, collective bargaining expert at the German Economic Institute in Cologne: “Verdi’s collective agreement for Eurowings cabin staff is an example.” It applies to around 1500 employees. In other collective bargaining, the unions struggle to compensate for inflation, but there is no formal commitment. IG Metall, for example, wants to push through 8 percent more wages, the public sector unions 10.5 percent.
In Belgium, the whole matter has already caused considerable controversy. The system there is not uncomplicated – but at its core wage development is linked to inflation. The Belgian inflation rate was 13.1 percent in October; Everyone would be happy about such a wage increase. However, the general rate of inflation is not decisive there, as emphasized by Thomas Miessen from the Belgian trade union CSC. Rather, one looks at a special “health index”: Its shopping basket of 500 prices contains neither alcohol, tobacco nor petrol. Nevertheless, the price increases are currently high: there are forecasts that wages and salaries could rise by 10 percent in January 2023.
In the private sector, wages rise in line with inflation through “sectoral collective labor agreements” – in the public sector by law when inflation exceeds certain thresholds over a period of time. For the third time this year they were increased by 2 percent in September. While the union calls the system ‘social’ and fights for it, at least part of the entrepreneurial community grumbles: in a survey published in June by the Flemish Self-employed Federation, nine out of ten entrepreneurs called the current system ‘unsustainable’.
In Germany, on the other hand, rental contracts in which the rent is linked to inflation have gained in importance in recent years, as Reiner Braun from the real estate institute Empirica says. The Haus und Grund owners’ association estimates that 2.5 percent of the 12 million privately rented apartments have such index rents. In addition, there would be apartments from commercial providers.
At the turn of the year, landlords could increase the rent for these contracts by the average inflation rate for 2022; so maybe between 8 and 10 percent. However, this does not happen by itself, the landlord has to calculate the rent increase and inform the tenant of a corresponding increase. Haus-und-Grund President Kai Warnecke believes that private landlords have been reluctant to raise rents to date and that they will not fully exploit this opportunity. One or the other landlord will certainly pass on higher own costs – but not everyone and not necessarily in the full amount of inflation.
