2.2 No pay increases, despite a rise in productivity

The blow to purchasing power from rising prices is significant and indexation is protected. However, it should not be forgotten that workers did not come into this crisis from a position of strength. Since the financial crisis of 2008, Belgian workers have hardly gained any purchasing power, despite their increased productivity.

Real wages have barely risen – 0.9% in Belgium since 2009. Real wage growth is what is left of a wage increase when price increases are factored in – i.e. minus inflation. This low figure is worthy of note, because in the Netherlands and France, real wages have grown by 3% and almost 6% respectively since 2009. And in Germany by 19%. Nominal wage growth includes all indexations and conventional wage increases (by collective agreement). This increase is insufficient to effectively ensure real wage growth. Inflation also needs to be better contained.

However, the productivity of Belgian companies has increased since the financial crisis. In other words, an hour’s work earns companies more and more every year, but this income has not been passed on to wages. The reasons: a jump in the index in 2015, low wage margins (1996 Act) and slightly higher inflation in Belgium than in neighbouring countries.

In a fair economy, wages rise in line with prices and productivity. In this way, workers are compensated for the rise in prices and for their contribution to the rise in profits. The distribution between wages and profits then remains balanced.

Productivity is increasing more strongly in industry and services than in neighbouring countries. In industry, our productivity has increased by 52% since 2000, while in neighbouring countries it has been by 41%, on average.

In the same way as the manufacturing industry, services have also seen a sharp rise in productivity since 2000.

Nevertheless, the wages curve no longer follows the productivity curve. Since 1996, productivity has grown much faster than wages.

PRODUCTIVITY AND WAGES HAVE DIVERGED SHARPLY SINCE 1996

* It should be noted that 020 was distorted by the coronavirus crisis: a fall in hours worked causes hourly wages to increase.

This means a decrease in the share of wealth going to wages in the economy and an increase in the share of wealth going to profits.

FALL IN THE WAGE SHARE, RISE IN THE CAPITAL SHARE (IN % OF ADDED VALUE)

The share of the wealth produced that goes to shareholders is increasing. The share that goes to workers via wages and social protection is decreasing structurally. Also, some people are doing worse than others among the employed. The lowest wages are falling further and further behind the median wage (the median wage is the wage in the middle of the wage distribution scale). The lowest wages are therefore getting lower and lower. In 1999, a low wage (meaning the lowest 10% of wages) was just over 71% of the median wage. In 2020, it will be only 65%.

The

LOWEST WAGES ARE COLLAPSING IN BELGIUM

Percentage difference between the pre-tax monthly wages of the 10th, 20th to the 90th percentile and the median pre-tax wage in 1999 and 2020

1999 2020

Graphique : Minerva Think Tank

Source : Statbel 2020, wages structure survey

Created by Datawrapper

The FGTB is fighting hard against the Wage Act of 1996 – the legislation that keeps wages in a straitjacket. Apart from this fight, we are trying to obtain tangible progress for the lowest wages. In 2021, for example, we reached an agreement for increasing minimum wages. On 1st April 2022, they increased by €81 and a further €35 will be paid in 2024 and 2026. These are important measures, albeit insufficient to ensure a decent income for one and all. If we compare the minimum wage to the median wage, Belgium is not well placed compared with the rest of the OECD. In 2000, the Belgian minimum wage was 50% of the median wage, it is currently around 45%. The graph below shows the break in the trend since 2018.

The lowest wages are falling behind median wages in Belgium, but not in other OECD countries.

3. Businesses in trouble?

The financial crisis, Brexit, the pandemic – and now war. As each crisis comes along, the employer federations present the same scenario: “competitiveness is under threat, large-scale support from the State is required, pay cuts are ‘useful for the economy’”. FGTB does not deny that the current energy crisis is having an impact on many companies, especially on small independents and some SMEs. But the discourse we hear from the big industrial groups, represented by the FEB, ignores an important reality: many companies are doing better than ever. Some are profiting from this crisis, while others entered it with significant financial reserves.

3.1 Historically high company profit margins

In recent years, companies have increased their profit margins considerably. The profit margin is what is left as profit after deducting all costs. This trend can be observed in different sectors. In the first half of this year, Belgian corporate profits reached a record level: in 1999, profit margins were still 35%; in the second quarter of 2022, they rose to over 45% (source: NBB).

GROSS PROFIT MARGINS OF NON-FINANCIAL COMPANIES (1999-2022)

Source : NBB, Main indicators from the quarterly sector accounts 2022

As an indicator of profit margin, the gross operating surplus is compared with the value added of the company. ‘Gross’ means without taking depreciation into account.

Compared with neighbouring countries, this is particularly high: only in the Netherlands are profit margins a little over 40%.

As the graph below shows, corporate profits (expressed as gross operating surplus) have grown proportionately much more than the total wage bill. In a fair economy, this would happen at the same rate.

WAGES ARE GROWING LESS QUICKLY THAN PROFITS (1999 = 100)

Source : NBB, Main indicators from the quarterly sector accounts 2022

Gross operating surplus Wages

NB: Profits are expressed as gross operating surplus, remuneration as total remuneration of non-financial corporations

Currently, many companies have sufficient margin to absorb cost increases without passing them on in the price. However, in many cases, they choose instead to increase their prices, even beyond the cost increase. This fuels inflation. The fact that companies point to wage indexation as the source of inflation is cynical. They have a choice to make: absorb the shock by using their large reserves or pass on the price increase, which further fuels inflation.

Another reason for the rise in profit margins is that the index jump introduced by the Michel government –with the aim of increasing competitiveness and reducing ‘wages costs’ – has failed to achieve its objective. Belgian companies did not use these interventions to lower their prices and become more attractive, but used them to increase their profit margins (source: NBB, 2019).

The bankruptcy figures show this to some extent. Despite the difficulties faced by some sectors, the number of bankruptcies is still lower than the average in the years before the coronavirus crisis. This may mean that significant reserves have been built up.

3.2 Automatic indexation: a danger for competitiveness?

Employers argue that indexation will cause wages to slip and harm competitiveness. Does automatic wage indexation actually cause more inflation in Belgium than in the rest of Europe?

The overall price level (excluding energy) has risen by just under 10% in Belgium since the beginning of 2020. This is exactly the same as in the rest of the eurozone, but less than in Germany and the Netherlands, which do not have automatic indexation.

As noted above, many workers receive only one indexation per year. Trade unions abroad will also demand compensation for price increases. Wages in neighbouring countries will therefore rise just as fast, although they will have to wait a little longer than in Belgium.

INFLATION IN BELGIUM AND NEIGHBOURING COUNTRIES (EXCLUDING ENERGY)

Employers are always talking about Belgian wages increasing at a much faster rate than in neighbouring countries. But they also systematically ‘forget’ to talk about wage subsidies. In Belgium, wage costs are reduced by all sorts of subsidies in the form of public aid granted to companies to reduce the wages burden for things such as night work, overtime, shift work, R&D, etc. All are subsidised. In 2020, these subsidies amounted to more than 9 billion euros. Wage subsidies are the most important type of economic support in Belgium. In neighbouring countries, they hardly exist, as the graph below shows

RATE OF WAGE SUBSIDIES (AS A % OF THE WAGE BILL)

Source : Conseil Central de l’Economi, 2022

NB: Figures for the Netherlands for 2020 are distorted by “Covid-19 support” and are not included.

To sum up, Belgian business are ultra-subsidised… but they behave as though they weren’t.

The difference in wages costs (also known as the wages ‘handicap’) between Belgium and its neighbours is central to the formation of wages. The law stipulates that this difference must remain zero. However, the way this difference is calculated is problematic. It does not take into account the billions of wage subsidies that we mentioned earlier. These considerably reduce the difference with neighbouring countries, although this is not to be seen in the official figures.

The graph below takes wage subsidies into account. The yellow line is the most important element for reading this graph. It shows the size of the gap between wages and costs since 1996, the starting point of the wages bill.

A figure below 100 indicates a labour cost advantage for Belgium: for example, by 2020 labour costs had risen 4% more slowly than in neighbouring countries since 1996. By the end of 2022, labour costs in Belgium will still have risen 2% more slowly than in neighbouring countries since 1996.

Wages Gap Since

(1996 = 100)

Source : OCDE, Belgium Country Report 2022, own calculations

4.

There is therefore an urgent need to reform the 1996 law so that all of the measures for reducing labour costs are taken properly into account. In addition, there are the tax exemption measures which further reduce the cost of labour, but which are not taken into account in the calculation of the wages ‘handicap’.

We are supported in this by the International Labour Organisation. In November 2022, the ILO ruled that the strengthened law of 1996 was in contradiction with ILO Convention 98. This convention guarantees the autonomy of the social partners in wage negotiations. It is an autonomy that does not currently exist in Belgium.

Who will pay the bill for successive crises?

The political right has a habit of depicting Belgium as an economic graveyard where public finances are on the brink of collapse. Only with heavy restructuring and “structural” reforms would Belgium still have a future. Healthy public finances are also important for the FGTB, but the current situation is so exceptional that a budget surplus should not be the priority for the moment. The overall context is not as dramatic as people claim.

Since 2013, the government’s primary balance has again been above zero. This figure is important because it make an allowance for the difference between government revenue and expenditure without taking public debt into account. The figure below shows that tax can cover all expenditure.

Economic recovery can be rapid. It can also be achieved through taxation. The same right-wing commentators predicted a long and lasting economic recession after the coronavirus crisis. However, a rapid recovery followed. By the summer of 2022, economic activity had already returned to the level forecast earlier, before the coronavirus crisis. As a result, Belgium received less aid than expected for the European Recovery and Resilience Plan (4.5 billion instead of 5.9 billion).

Economic Activity At The Forecast Level

Growth achieved (2022)

Growth forecast (2022)

Source : OECD economic outlooks november 2019, juin 2022

4.1 The 80% employment rate fetish

In the quest to achieve a balanced budget, one obsession is repeated in all political statements: the need to achieve an employment rate of 80%. All the miracles would then come from there. Having more people in work means fewer benefits and more income for the state. Which all sounds logical, but is it really?

Many things are overlooked in the debate. Belgium is said to have a low employment rate compared to its neighbours: barely 70% compared with 80% in the Netherlands. But there is a problem with this statistic. If you only work a few hours a week, you are still included in the numbers. And a person who works full time is given equal value. This is not a fair comparison. It means that the Netherlands, with its abundance of short-term and part-time contracts, appears to have a lot of workers in employment. What happens if we take into account the real working time (workload), and therefore if we consider employment in full-time equivalents? More people work in full-time equivalent roles in Belgium than in the Netherlands (61% versus 60% respectively). And it is precisely this total labour force that is important, because it is based on this number that social security contributions are paid.

We already know that our productivity has continued to rise sharply. But does the average Belgian work less than other Europeans? Not at all: the average Belgian worker works 11% more hours than the Dutch, Germans or French.

Source : OECD.stats, 2022

The number of hours worked per worker on an annual basis has fallen in recent years, due to part-time working schemes, time-credit schemes and other forms of individual working time reduction. In Belgium, however, this development is much less pronounced than in neighbouring countries. There is an urgent need to relaunch the discussion on collective working time reduction, among other things.

* Average number of hours per person, annual, 1970 = 100.