The pressure to recover the loss of purchasing power of wages will mark the next bars in developed economies. A very relevant social question, but also the definition of the future economic model.
Christine Lagarde, president of the European Central Bank (ECB) has had to deal with a problem that companies and workers in the eurozone have been facing for some time. The agreement on the salary increase. Lagarde offers her 4,000 employees a raise of just over 4% for 2023, less than half of inflation in Germany and in the eurozone, now at 10%. The European financial institution is campaigning against inflation and one of its maxims is that salary increases must be below price rises to avoid unleashing a spiral of feedback increases. For the moment, she seems to lead by example, although the proposed increase, which the employees' union rejects, is higher than the average agreed so far in the eurozone: 2.9%, according to the bank's own reports.
Salaries at the ECB are structured on a scale of fifteen categories ranging from the lowest for a newly hired employee, 37,000 euros per year, to the highest level, referring to senior managers and board members, who without per diems They are close to 300,000 euros. For example, President Lagarde received 421,000 euros, plus her official residence in Frankfurt, where the ECB has her headquarters, and which is paid for by the institution itself. Furthermore, it should be noted that the tax regime for euro bank employees is lower than that of most member states. In other words, the economic situation of ECB employees is not comparable to that of the vast majority of wage earners in the euro area.
But the case serves to highlight the increase in tension between companies and workers due to the increase in the cost of living that has manifested itself so vividly this year. Probably the most relevant factor for the economy and politics in the coming months, along with the ever-present threat of financial instability.
In the fight for the distribution of the costs of the crisis and inflation, if the balance is established in absolute terms, salary increases compared to inflation, employees lose by far. The increases achieved are scarce, well below the increase in the basic basket. In the US a little less, the rise at the moment is 5.1% compared to 3.9% in Europe, in terms of cost per employee. On the other side of the scale, corporate profits, especially large ones and those in the service sector, are gaining by several bodies. But if it is compared with the starting point, with the extreme weakness of the employees, psychologically still very affected by the past crises and their effects on employment and wages, a trend towards greater firmness can be observed in the demands for increases for part of the employees.
Ahead lies the tension between a skyrocketing cost of living and salaries that did not have time to recover from the blows of the financial crisis, first, and the pandemic, later. An issue of enormous social significance, since it eats away at the foundations of political stability. But also the economic one.
The OECD has already taken note of the matter and has recommended substantial increases in the minimum wage, an income that already under normal conditions barely covers basic needs and that now, with price rises, more accentuated in essential products, has remained for below the vital waterline.
“With inflation reaching levels not seen in the last four decades in most OECD countries and disproportionately affecting the lowest income and most vulnerable households, minimum wages could become an even more important tool to protect living standards. of low-wage workers, while keeping public finances and inflation under control," the agency said. A report that fits like a glove to the Spanish Vice President and Minister of Labor, Yolanda Díaz, a well-known defender of a clear increase in the interprofessional minimum wage.
The problem is that the ECB, as well as the US Federal Reserve and the Bank of England, not only recommend containing wage increases, they are also raising interest rates to cool the economy, another of their preferred ways to contain price increases. As a consequence of this, the opinion of the majority of economists, in Europe and the US, agrees that the large economies will go into recession as a result of the general conditions and the rises in interest rates by central banks. .
Thus, a kind of race is established between the increased pressures to achieve higher wages, with which to cushion the loss of purchasing power, and the entry of economies into recession.
If a balance is not reached, the consequences will be negative. In the case of small and medium-sized companies and those less advanced in terms of productivity, they will be trapped with higher wages and without the ability to pass on their cost increases in a context of economic downturn.
In the event that workers do not recover their purchasing power and therefore the internal market of the euro area loses steam and power, a scenario similar to that of the last euro crisis will begin. An unrecognized situation of austerity, the new competitive devaluation, in which the solution will be to increase exports thanks to lower costs to compensate for the loss of sales in the interior. The great German power continues to operate in those terms, despite hasty rulings that consider its recent growth model dead.
